Back Patio of a home in Santa Cruz

Mortgage interest rates have risen from their all-time lows in recent years, and the percentage of buyers who pay cash is growing.  Whether in outlying areas like San Lorenzo Valley and Scotts Valley or in town centers like the City of Capitola, there has been a noticeable upsurge in the number of property transactions completed entirely with cash over the past few months. Since October 2022, people who bought homes without the help of loans have made up more than 25% of the nation's real estate market. The percentage of homes sold in January 2024 reached a record-breaking 32%, the highest since June 2014, when a sizable chunk of the market consisted of cash buyers. For the same month the previous year, the percentage was 29%.

Who Are These Cash Buyers?

Based on the findings from the Realtors Confidence Index, there is a growing trend among purchasers towards either investment opportunities or holiday properties. An in-depth review of buyer habits reveals a substantial increase in cash transactions for principal residences in recent years. These buyers often possess previous experience in buying properties and have accumulated sizeable equity in their current homes, enabling them to buy their next residence without requiring financing from a lender. A considerable part of this increased financial freedom can be attributed to the recent rise in inflation and home valuations, allowing them to accumulate impressive equity in their current properties.c

In 2003, only a minority of those who purchased primary residences for the second time could fully pay for the property in cash. In 2023, the percentage of acquisitions without mortgages increased to 26%, indicating a significant rise. In the same year, the rate of first-time purchasers who chose to make all-cash purchases increased slightly to 6%, up from 4% in 2003. However, it is essential to note that transactions of this nature are still sporadic among individuals purchasing a property for the first time.

Drivers of All-Cash Purchases

The surge can be attributed to several crucial factors shaping the current landscape of the real estate industry.

Firstly, the current increase in mortgage rates has posed a challenge for numerous potential buyers now exploring alternative payment options. Individuals with greater financial resources are opting to make full cash payments to avoid the high interest charges.

Furthermore, affluent buyers who previously relied on financing options during exceptionally low interest rates are now shifting towards all-cash transactions. With the current high mortgage rates, financing is much less appealing compared to the era of about 2.5 percent rates.

In addition to the equity gained from previous property ownership, the willingness of primary residence buyers to relocate long distances is another factor that enables them to complete all-cash transactions. For those who purchased their primary residence outright with cash, the average distance they moved was 60 miles. Surprisingly, nearly 30% of these individuals relocated 500 miles or even further. On the other hand, a mere 16% of people who financed their home purchase relocated more than 500 miles, with a typical distance of 18 miles. Despite the initial surge in long-distance relocations during the COVID-19 epidemic, they continue to be popular, especially for seniors and individuals with remote work opportunities.

Demographic Patterns Among Cash Buyers

Repeat homebuyers make up a larger share of these cash purchasers who are significantly impacting the real estate market. According to the National Association of Realtors (NAR), the dominant demographic in cash-buying housing deals right now is the Baby Boomer generation. Fascinatingly, about one-third of younger Boomers and around 50% of elder Boomers choose to pay cash for their most recent home purchase.

The Silent Generation, which includes 4% of the most recent homebuyers, paid cash for 53% of their purchases. Older purchasers often choose more diminutive and more economical houses due to the downsizing trend; they are not first-time homebuyers. They may make their subsequent acquisition with no bank loans thanks to the equity in their prior houses.

Property prices have risen dramatically over the previous 14 years, and many homeowners are cashing in on their gains by selling their houses. As a result of selling their homes and paying off their debts, homeowners in locations where property values increased by more than 50% in the last two years are now able to buy new residences with cash.

Looking at the market through the lens of racial demographics reveals that white buyers comprise 23% of the total and are the most common kind of buyer using cash. On the other hand, 15% of customers are black, 8% are Asian or Pacific Islanders, and 4% are Hispanic or Latino. Also, many investors and real estate developers are among those driving demand for such transactions.

Implications for Market Dynamics

The rising frequency of all-cash transactions is causing significant effects on the housing market, impacting supply-demand relationships and affordability. Cash buyers adding liquidity to the market worsen housing shortages, increasing competition among potential homeowners. This tendency significantly influences home prices by reducing the possibilities for purchasers who do not pay in cash, exacerbating the supply and demand imbalance.

This tendency has significant repercussions beyond market dynamics to include larger societal effects. The mismatch impacts affordability and changes the housing market structure, leading to increased inequities in homeownership options. Policymakers and industry stakeholders are under increasing pressure to address the imbalances caused by cash transactions in the market and create a more inclusive and sustainable housing environment for all segments of society.

Looking to Buy a Home for Cash in Santa Cruz or Small Towns Near Santa Cruz?

A fascinating development is taking place in the realm of real estate in Santa Cruz and the delightful neighboring small towns near Santa Cruz, like Capitola, Soquel, and Aptos: the growing influence of buyers who prefer to make cash payments. The attractive coastal lifestyle and the current mortgage rates are drawing in potential homeowners to these desirable areas, leading to a significant increase in demand and reshaping the dynamics of the local real estate market. If you're interested in buying a property in Santa Cruz or one of the charming nearby towns, whether you're a cash buyer or not, we're here to offer you dependable support throughout the process.

Located along the beautiful seashore, the City of Capitola and the Capitola Village, California, embody a small coastal town's charm and welcoming atmosphere and a community with a vibrant spirit. Featuring stunning waterfront locales with quaint shops and cafes, Capitola is a place where town residents who value a seaside lifestyle can come to relax and own a pied-a-terre by the sea.

You will discover other intriguing towns along the way, like Scotts Valley and San Lorenzo Valley, as you drive through a breathtaking area. The lovely forests, meandering rivers, and sense of community these properties offer make them highly sought after by cash buyers seeking tranquil, natural settings.

Additionally, there are beautiful beaches and fantastic ocean views in the Beachfront Santa Cruz region, as well as the towns of Aptos and Capitola. Many cash-strapped individuals are drawn to this coastal community due to the daily opportunities to observe the tides turning, sunlight, and tranquility.

Get In Touch with Us

As we explore the complexities of the real estate market, it becomes evident that the increasing number of cash buyers is not just a passing trend but a sign of significant changes happening in the market.

Everyone in the industry, including other buyers and sellers, feels the effects of this. Understanding and adjusting to these changes is essential for those navigating the ever-changing real estate market. Are you prepared to start your search for the house of your dreams in downtown Santa Cruz, West Santa Cruz, or the beautiful small towns near Santa Cruz? Get in touch with us immediately to get professional advice and individualized support specifically designed to meet your real estate requirements. Together, we can make your dream of living by the sea a reality.

Paul Burrowes, CRS, CCEC, SFR, NHCP, LHC, REALTOR® Licensed REALTOR® with over 15 years of experience and expertise.  Commits to being on time and transparent. Acts as your consultant to ensure you make the best decisions to fit your transaction at every step in the process. Negotiates towards a low stress, win-win outcome. Handles all the details for you, ensuring the hundreds of steps in your real estate transaction go smoothly. Proudly serving Silicon Valley, Santa Cruz, Monterey, and Santa Clara Counties!  | DRE# 01955563 | (831) 295-5130 | | About Santa Cruz and Northern California Real Estate

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