All-cash homebuyers are becoming 'disruptive' to the housing market

• A third of all homebuyers are paying cash, the highest share in a decade, Redfin found.

• New home listings are down 25% year over year, resulting in more feverish competition.

• Cash bids may carry even more weight as banks tighten credit on borrowers.

During the pandemic housing boom, homebuyers begrudgingly accepted that they'd face lots of competition, especially from people wowing sellers with suitcases of cash.

Many facets of the housing market have changed since then. As for the cash buyers who can pay in full without taking out a mortgage, their power has only increased.

In April, cash buyers commanded the biggest share of the shrinking home sales market in nearly a decade. As the spring selling season got underway, people who needed financing were often foiled by rising interest rates, Redfin reported this week. Cash buyers represented 33.4% of transactions in April, far above levels hovering around 25% for most of the past decade.

The data is the latest sign that cash buyers are clashing with borrowers more than ever. The problem has gotten worse because the drop in available homes is exceeding the slowdown in demand, according to Redfin.

On Thursday, Redfin reported that a 25% drop in new listings has pushed down the total number of homes on the market by 5% year over year — the lowest levels for early June since it began collecting the data in 2015.

The result: Some homebuyers are dropping out of the market even if they could stomach the borrowing costs.

"Cash offers used to be an occasional nuisance and now they're becoming disruptive" to the market, said Debra Shultz, a vice president of mortgage lending at CrossCountry Mortgage.

Shultz, who is based in New York City, told Insider about one potential borrower who made offers on many different properties over a period of a few months. At each turn, he lost them either because he'd been outbid or because the seller went with a cash offer, she said.

"His last email to me was 'I think I'm done with this market,'" she said. The customer vented some more: "People are offering 20% above and all cash?!?"

Shultz is battling the perception that the cash offer is always king. As long as the buyer is well-qualified and can assure the seller of a quick close, there should be no difference in the quality of that bid to a cash bid, she said.

In general, that's true, said Deanna Kory, a broker with the Corcoran Group in Manhattan. In New York City, sellers are typically accepting buyers who are clearly qualified for a loan as often as they accept cash buyers, she said.

From a seller's perspective, "the cash buyers are thrown in with the pool of people financing, and they have maybe an ever-so-slight edge," said Kory, who said a cash bid made some difference in one of her two most recent sales in Manhattan. In May, about half of all Corcoran's Manhattan sales were cash, which is elevated, she said.

That advantage for cash buyers may be amplified in the months ahead as banks tighten credit, Kory said. Because of the stricter underwriting, some banks have told her clients to expect a closing that takes up to eight weeks, up from four to six.

Shultz said she's helping borrowers compete with cash buyers with CrossCountry's "fast-track approval," which completes all the underwriting before an offer is made, leaving only the appraisal to be done before closing.

Read the original article on Business Insider