Cash deals dominate the housing market as baby boomers retire

June 2nd, 2014

Retiring baby boomers are hitting the market with all-cash offers because they don't want to get a new mortgage.

As more baby boomers reach retirement age and seek a new property, the number of all-cash home purchases is increasing.

According to Bloomberg, their presence in the market is what’s driving the changing trend. Many retirees don’t want another home loan and have the capital to purchase a property without financial assistance due to their years of saving.

“I feel better about owning my home outright,” Mike Trafton, a 55 year old who used cash to buy a home for retirement in Boise, Idaho, told Bloomberg. “At this stage in our lives, we can afford it, and it’s better than having a monthly mortgage payment hanging over us.”

Although home prices have catapulted during the housing recovery, boomers have the funds to compete in the market. Additionally, they get to cash in on rising equity when they sell their current property.

All-cash purchases going up in 2014
Traditionally, home purchases made with cash are from investors looking to sell the property for a profit or turn it into a rental. However, many of those buyers bowed out once price increases became too steep, leaving boomers to pick up the slack.

“Cash purchases are on the rise because older homeowners who have decades of home-equity accumulation don’t want the hassle of a mortgage,” Lawrence Yun, chief economist of the National Association of Realtors, told Bloomberg. “With the economy improving and the stock market at record highs, boomers are the ones who are driving the market.”

Regardless of where the cash is coming from, all-cash sales are on a positive trend, as RealtyTrac reported that 42.7 percent of all U.S. residential sales in the first quarter of 2014 were made with cash, an increase from 37.8 percent  the previous quarter and 19.1 percent the same time a year ago. This rise is good news for the housing market, but may be lukewarm for all buyers, as cash buyers have a better chance in a competitive market.

While this does signal a tougher time for those in a bidding war – especially for many millennials in the first-time homebuyer group – it does not mean that boomers have control of the entire market. Even so, mortgage-dependent buyers should factor in their presence, particularly in locations that are typically sought by retiring Americans.