More Homebuyers Are Using This Method To Curb High Mortgage Rates

Ron Brown, a home buyer in Arapahoe County, Colorado, was shocked to discover that mortgage rates were substantially higher than they had been when he started shopping for a property. It had taken him a year to find his home.

Brown told the Wall Street Journal that he paid $965,000 in cash for the three-bedroom house in Littleton, Colorado, to avoid taking out a loan with exorbitant interest rates.

He borrowed money from his own savings and used his stock holdings as collateral for the loan, which had an adjustable interest rate based on the fed funds rate plus a 2.25% margin.

He’s not the only one to pay all cash.

An eight-year high of 35% of single-family home and condo sales were made entirely with cash in the second quarter. According to Rick Sharga of housing data provider Attom Data Solutions, that rate is only expected to rise.
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“Going forward if you’re able to buy a property with cash, you’re in a position of extreme competitive advantage over somebody who’s going to have to finance a purchase with mortgage rates at 6 or 7%,” he said.

Although institutional buying has increased recently, the majority of all-cash buyers are conventional Americans purchasing rental properties.

Speaking of rentals, here's how to make a $100 investment in a rental property (or more, depending on your appetite) and yield a quarterly passive income.

Cash buyers account for a higher portion of the market for a number of reasons, according to Taylor Marr, deputy chief economist at Redfin Corp RDFN.

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Cash purchasers are more likely to win in a bidding war for a property than mortgage borrowers in the competitive housing market.

Lastly, there are more institutional investors in the market now. Marr said that 75% of investor purchases are made with cash, citing data from Redfin.
To read about the latest developments in the industry, check out Benzinga's real estate home page.