Benzinga - by Neil Dennis, Benzinga Staff Writer.
Rising mortgage rates in 2023 drove the number of U.S. home loan applications to 28-year lows — but not all potential buyers were put off by rising costs, as cash sales became increasingly popular.
The average 30-year mortgage rate rose to 6.69% in the week to Jan. 25, according to data from mortgage brokerage Freddie Mac. That was up from 6.6% in the prior week.
Having dropped steadily from October’s 7.79% high on hopes of Federal Reserve interest rate cuts in the first half of 2024, mortgage rates have risen in three out of the last four weeks as doubts have begun to creep in about the timing and depth of anticipated rate cuts.
Also Read: Homebuilder Shares Hang In Balance As Credit-Stretched Consumers Await Rate Cuts
Cash Sales Growth
Property data provider ATTOM, said that the national average share for cash sales rose to 38% in 2023. That was up from 36.1% in 2022 and from 33.5% in 2021.
ATTOM said: “This upward trend reflects a broader shift in the real estate market that could be attributed to several factors, including a post-pandemic economic recovery, and a significant influx of investors into the housing market, or possibly a response to tighter lending standards.”
Nevertheless, 2023 was a mixed year for housebuilders. D.R. Horton (NYSE:DHI) reported last week that it sold more homes than in 2022 and its revenues were higher, but this top-line growth came at the expense of margins and earnings as the company increased sales incentives and discounts.
Indeed, buying in cash is usually one of the most discounted payment options for large transactions.
Shares, however, performed well as investors noted increased sales and growing homebuyer activity. The iShares U.S. Home Construction ETF (NYSE:ITB) whose top holdings are D.R. Horton, Lennar (NYSE:LEN) and Pulte Group (NYSE:PHM), gained an impressive 67% over the year.
Homebuyers Stretched
In addition to high mortgage rates, house prices — before discounts — rose to near record levels in 2023, while short supply meant increasing competition for houses on the market.
The data on cash sales compiled by ATTOM showed that the metropolitan area that enjoyed the biggest share of cash sales, at 61.5%, was Macon, Georgia, closely followed by Naples, Florida with 58.9%.
Now Read: Why Builder D.R. Horton Shares Are Diving Today Why Builder D.R. Horton (DHI) Shares Are Diving Today
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