As central banks continue to increase interest rates in an effort to stave off inflation, they’ve also created a drag in the overall housing market, as homeowners face higher mortgage costs. For now, though, buyers are still eager to get their hands on prime property—especially if they feel they’re getting a deal.
“If it’s priced in the right range, and it’s a special property, it’s still moving,” says Chris Klug, broker and partner, Aspen Snowmass Sotheby’s International Realty. Klug says that more buyers on the ultra-high-end had been taking out mortgages in the last couple of years because of “incredibly advantageous rates,” now he’s seeing more cash buyers, private financing, and portfolio financing.
“The fear of missing out that was happening last year is now replaced by the fear of paying too much,” says Michael Pallier, managing director, Sydney Sotheby’s International Realty. “While the rates are going up, [buyers] may feel they don’t have to rush because, in six months’ time, prices might present a better value.”
Not only that, cash buyers are making a strong comeback.
Over the past few years, even ultra-high-net-worth individuals have taken advantage of historically low interest rates and used credit to purchase homes. Now that interest rates have more than doubled over the past year, reaching more than 7% at the end of October 2022, these buyers are turning back to cash.
“We are definitely seeing buyers move from loans to cash,” says Ryan MacLaughlin, owner and principal broker, Island Sotheby’s International Realty in Hawaii. Some, he says, “are hoping to finance the home after the fact as a refinance with a lending institution, once interest rates go back down. They will wait for that even if it's a year or two away.”
During the third quarter of 2022, 35.7% of single-family home and condo sales in the U.S. were all-cash, according to Attom Data Solutions.
That number tends to be higher among luxury buyers, Sotheby’s International Realty brokers say. Jacques Menahem, founder, French Polynesia Sotheby’s International Realty, says about 50% of his transactions in the past year came from cash buyers.
“Sellers always prefer cash over credit,” Menahem says. With interest rates changing so quickly, banks may change their mind on preapproved loans. A seller will likely choose the less risky bet.
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