In 2024, the median percentage of homes sold to buyers who paid entirely in cash—without taking out a mortgage—reached 22%, according to a recent survey conducted by the National Association of Home Builders (NAHB). This figure was gathered from a special question added to the NAHB/Wells Fargo Housing Market Index survey in May 2024.
The percentage of all-cash sales is a significant indicator, as it may reflect the availability of mortgage credit in the market. Notably, this percentage has shown a direct correlation with interest rates, particularly the Federal Reserve’s target federal funds rate. For instance, data from the Census Bureau’s quarterly “New Houses Sold by Price and Financing” release revealed that the share of all-cash sales surged after the Federal Reserve began tightening monetary policy in 2022, peaking at 10.7% in the fourth quarter of 2023 before falling to 6.6% in early 2024.
At first glance, the 22% all-cash sales figure from the NAHB survey appears to contradict the lower percentages reported by the Census Bureau. However, it’s essential to explore the reasons behind this apparent discrepancy.
The Census Bureau’s quarterly report is based on a sample of new homes, while the NAHB survey focuses on a sample of builders, many of whom are smaller companies. Larger builders, who construct a higher proportion of new homes, might have lower shares of all-cash sales, which could explain the difference between the Census and NAHB figures. However, the NAHB survey data suggests otherwise, indicating that smaller builders actually have the lowest share of all-cash sales.
Another factor to consider is the Census Bureau’s definitions. The quarterly Census report tracks new homes sold, meaning a potential buyer has either signed a sales contract or made a down payment. However, this does not include all new single-family homes. Some homes are classified as contractor-built or owner-built, where the ultimate homeowner hires a general contractor to build a home on their own lot. These homes, which often involve a contract to build rather than a traditional sales contract, are more likely to be financed with all cash.
Additionally, the Census Bureau compiles an annual file from the same data that includes all types of new single-family homes. A recent tabulation by NAHB of the 2023 data revealed that contractor-built and owner-built homes are much more likely to be all-cash transactions than those built for sale.
NAHB’s latest census of its members found that 54% of single-family builders primarily engage in custom building, which corresponds to contractor-built homes in the Census Bureau’s classification. This concentration of custom builders in the NAHB survey likely contributes to the higher reported share of all-cash sales.
In summary, the NAHB’s May 2024 survey indicates a median of 22% all-cash sales, significantly higher than the peak of 10.7% reported by the Census Bureau in their quarterly release on new houses sold. The discrepancy seems to stem not from differences in survey methodologies but from the inclusion of custom builders in the NAHB survey. These builders specialize in contractor-built homes, which are more likely to be financed entirely with cash but are not captured in the Census Bureau’s reports on new houses sold.
Therefore, the NAHB survey provides valuable, timely insights into new home financing, particularly within the custom home-building sector.
