All-cash deals and larger down payments have become more common, as buyers compete for far-too-few homes for sale and look to lower their monthly mortgage payments – or skip them altogether.
More than one of every four (25.8%) homes sold in California were all-cash purchases in June, compared to a year ago, according to Redfin.
In an odd flip, all-cash deals accounted for 40% of home sales in Riverside, and 18.3% in San Jose, one of the highest and lowest rates in the U.S. Riverside has been attracting more cash investors in recent months, while San Jose’s $1.5 million-plus home prices and stock market-dependent buyers likely caused the drop in Silicon Valley.
All-cash deals have increased about 2 percentage points compared to a year ago in California, a far-from head-turning figure but an impressive gain given fast-rising home prices and a roller-coaster-like ride on Wall Street.
HIGHER MORTGAGE RATES LEAD TO LARGER DOWN PAYMENTS
The average down payment was 21% in California in June, including 25%-plus down payments in the Bay Area and Orange County, according to Redfin.
The average amount of money for a down payment increased 14% compared to a year ago, with higher prices the primary reason.
Bottom line: Many buyers, especially those with big bank accounts and deep pockets, are choosing to avoid the highest mortgage rates in more than a decade – and larger monthly mortgage payments. Mortgage rates have declined in recent weeks, but they remain near the highest level in more than two decades, according to the weekly Freddie Mac report.
“The percentage of all-cash sales generally follows the same trend as the rise and fall of mortgage rates,” says Redfin senior economist Sheharyar Bokhari. “When rates are down, the percentage of all-cash sales is down too, and the opposite is true when rates go up. That means we may start to see all-cash purchases level off a little now that mortgage rates have started to come down from recent highs.”
When mortgage rates were at a historic record low just a few years ago, many buyers borrowed the cheap money in pursuit of higher-yielding returns often through investments.
Nationwide, the average buyer put down almost 19%, and three of every five buyers plunked own 10% — one of the highest shares on record, according to Redfin. All-cash deals were slightly more than 30% of sales.
| Metro | Average down payment | % change from a year ago | Down payment as % of home price | % of all-cash deals |
|---|---|---|---|---|
| Anaheim | $300,000 | +20.0% | 25% | 30.4% |
| Los Angeles | $188,000 | +10.3% | 20% | 23.3% |
| Oakland | $195,000 | -11.0% | 20% | 21.2% |
| Riverside | $48,012 | +1.1% | 10% | 39.9% |
| Sacramento | $107,650 | +19.5% | 20% | 22.9% |
| San Diego | $183,500 | +23.6% | 20% | 23.1% |
| San Francisco | $451,500 | +16.2% | 25.8% | 27.5% |
| San Jose | $451,500 | +13.4% | 25.7% | 18.3% |
Source: Redfin
Redding is one of the most “at-risk” housing markets in California and nationwide. The Sundial Bridge in Redding. SHUTTERSTOCK
California has several ‘at-risk’ housing markets
California boasts one of the best housing markets, with the average home seller enjoying a $366,000 profit during the second quarter – and much more in the Bay Area.
But affordability – fewer than one of every five households could buy the median priced home in the state – and a sometimes-jittery economy poses real risks for homeowners in the Central Valley, Northern California and the Inland Empire.
New Jersey, Illinois and California have the most at-risk housing markets in the U.S., largely because of affordability, underwater mortgages, foreclosures and unemployment, according to a just-released ATTOM Data report based on second-quarter information.
NO ‘IMMEDIATE RED FLAGS OR WARNING SIGNS’
The Central Valley – Bakersfield to Stockton – and Northern California, from Chico to Redding, could face some significant headwinds, especially if the economy slows or ongoing recession worries become a reality.
Also, homeowners in the Inland Empire, also known as Riverside and San Bernardino counties, in Southern California could struggle.
“The housing market boom continues to gain momentum, thanks to another springtime boost,” says Rob Barber, CEO of ATTOM Data. “However, some markets show signs of potential instability, which suggests a mixed level of risk, particularly in certain regions that repeatedly show signs of concern. While these observations don’t indicate immediate red flags or warning signs of an impending downturn, they do highlight areas of relative risk.
Of course, the majority of homeowners – even in these higher-risk areas – have a ton of equity and could likely sell their homes for a nifty profit. For example, about 45% of Bakersfield-area homeowners are considered equity-rich, with more equity than mortgage debt based on the latest value of their home. More than half (53%) of homeowners in Riverside County are equity-rich, according to ATTOM Data.
California Association of Realtors hires new CEO
The California Association of Realtors, one of the largest professional organizations in the state, has hired Phil Hawkins as its new chief executive officer.
Hawkins was most recently CEO of the Anaheim-based Pacific West Association of REALTORS (PWR), one of the largest local real estate associations in the state. Hawkins succeeds interim CEO Debra Ferrier, who is also the CEO of CAR’s for-profit subsidiary Real Estate Business Services.
“On behalf of C.A.R.’s leadership team and our search committee, I am thrilled to make this announcement,” says CAR president Melanie Barker. “Phil has deep knowledge about the real estate industry and the political landscape in California. His insights into the many issues facing us today make him uniquely positioned to be our next CEO. Phil joins the organization during a time of significant industry change and, as such, will be instrumental in developing and delivering on a vision for CAR and for our profession.”
‘WE WILL SUCCESSFULLY NAVIGATE THE CURRENT ENVIRONMENT AND EMERGE EVEN STRONGER’
Hawkins, who was chosen after a nationwide search, joined Pacific West in 1998 as vice president of Government Affairs and was later named executive vice president of Government Affairs in 2008 and then became the association’s CEO in 2015.
“I am eager to collaborate with our leadership team, the board, and the staff at CAR during what is an extremely challenging period for our industry,” Hawkins says. “I am confident that, together, we will successfully navigate the current environment and emerge even stronger, ready to seize opportunities that lie ahead for our members, the industry and our organization.”
As part of a National Association of Realtors settlement, real estate agents are required to change their decades-old practices, including commissions and forms.
