More Paying With Cash

There’s a reason the mortgage industry exists. Most home buyers don’t have enough money to cover the entire cost of a new home — especially in today’s housing market, what with home prices being so inflated. But actually, a lot of buyers are skipping the mortgage process this year and are buying homes in cash instead. In fact, 30% of all U.S. home purchases in 2021 were cash transactions, reports Redfin. That’s an increase from 2020, when 25.3% of home purchases were done on a cash basis. Paying cash for a home has its drawbacks, even for those who can afford it. When you buy a home in cash, you tie up a lot of money in an asset that’s fairly illiquid.

Liquidity speaks to how easily and quickly you can get your money back on an investment. Stocks, for example, are fairly liquid. You can sell a stock and get cash for it almost immediately. Selling a home, on the other hand, can be a lengthy process. You need to create a listing, have buyers come see it, evaluate offers, and then wait for a real estate transaction to close, which could take weeks or even months. It’s for this reason that so many buyers take out mortgages to purchase a home, even when paying cash is an option. But this year, the housing market has been starved of inventory, and what few homes have hit the market have largely wound up in bidding wars. By offering to pay cash, buyers give themselves an advantage over their competitors — namely, those who need a mortgage to finance a home.

Source: Motley Fool