Roughly 31.2% of home purchases were paid in all cash in December, down from the 31.9%, the eight-year high hit in November, Redfin said Wednesday.
Still, it’s up 28.8% from a year earlier.
“Buyers are successfully using FHA loans more often now because sellers are eager to jump on any offer they get when their home sits on the market and gets just one or two showings a week,” said Redfin Senior Economist Sheharyar Bokhari. “That means buyers with less money in the bank are finally able to win homes."
Bokhari added, however, that it’s not all good news for FHA buyers: "Their loans are getting accepted because the market is slow, and the market is slow because high rates and prices make it unaffordable for a lot of people,” he said.
FHA loans make up 16% of mortgaged home sales, the highest portion since the start of the pandemic. Nearly one in six (15.6%) mortgaged home sales nationwide used an FHA loan in December, up from 12.5% a year earlier and the highest share since May 2020.
VA loans have also become more common, with 7.1% of homebuyers who took out a mortgage using one in December. That’s up from 6.2% a year earlier and the highest share since July 2020.
FHA loans — and VA loans, to a smaller extent — became increasingly prevalent in the second half of 2022 as the overall housing market cooled considerably due to rising mortgage rates and buyers gaining more negotiating power. That came after their use plummeted in 2021 amid the ultra-competitive pandemic housing market. The share of mortgaged home sales using an FHA loan fell to a record low of 10.4% in April 2022, while VA loan usage bottomed out in March and April 2021 at 5.5%.
Even though it’s now easier for buyers to use FHA loans, all-cash buyers are still in a financially advantageous position. They don’t need to pay the extra money that comes with interest on their mortgage, and they’re better able to take advantage of home prices coming down from their peak.
Just over three-quarters (77.3%) of December’s mortgaged home sales used a conventional loan, down from 81.2% a year earlier and the lowest level since June 2020.
The share of homes bought with cash remains elevated above pre-pandemic levels because mortgage rates are high, averaging 6.36% in December. Buyers who can afford to pay cash are motivated to do so because it means they don’t need to pay high interest on a loan. The typical monthly mortgage payment is up about 25% from a year ago, when rates were around 4%.
