| > The only wild card here is what will happen with cash buyers, who aren't affected by mortgage rates. Depends what you mean by cash buyer. There's a few different categories here and people sometimes get confused. 1) Someone who is very wealthy and has enough cash (or cash convertible assets) lying around to buy house without financing. I'd put Bill Gates in this category. I think most people assume that this is what all cash buyers are (albeit not as wealthy as BG) 2) Someone who sold a home that previously appreciated in value and is now able to use the difference (plus some savings) to pay for the next home in cash. For example, you bought in Brooklyn in 1970 and now want to retire in Miami. You can probably sell that first place and have enough liquid cash to buy in Miami. This is sort of like category 1, but not necessarily someone who is wealthy in a way that most people imagine. 3) Someone who has access to some other means of temporary financing. For example, let's say you run a company and have a close relationship with your bank. You might already have a line of credit with the bank collateralized against your business or other assets that you can draw down to get a temporary loan so that you can make a "cash offer", which you then plan to turn around and get a mortgage on. You don't need to be able to afford $600,000 in cash to buy a $600k home. You just need to be able to have some means of financing it in between when you buy the home and when you take out a mortgage. Often times this might be a family member or friend helping out. 4) A real estate investment company that buys houses in cash. Again, you may not actually have the cash around, but you have a banking relationship and the ability to get large amounts of cash on short notice and without the amount of due diligence a mortgage reuqires. In 2020-2021 when the housing market was at its peak, I suspect that a substantial chunk of "cash buyers" probably fell in category 3. Yes, people had more money and there were lots of bitcoin millionaires, but not enough to hear about multiple cash offers on $500k homes (if you are the sort of person with $500k in cash to spare, you probably want more than a $500k home). In any case, all of these groups are affected by the current environment. The stock market is down and there are just fewer people in Group 1 right now. Sure, Bezos and Gates are just fine, but the person who had $10M in liquid assets in 2021 might have $7M in in late 2022 and is probably a lot more nervous about taking money out of that. For group 2, the house you are selling isn't gonna sell for as much, so you'll have less money to spend on your next house. For group 3, these people were planning to use financing as a bridge, but the underlying mortgage rates still very much affect you if you plan to take out a mortgage after the sale. And of course, Group 4 is probably the most effected... what kind of person in their right mind is investing in residential real estate right now :) |