Increase in cash sales makes RBA’s job harder.

I like to go to local open for inspections to meet potential home buyers. More and more recently during my chats, I hear the phrase “I don’t need a mortgage.” This surprises me a little given that houses are regularly selling at more than $1.5 million, so what a position to be in.

But it’s not just me.

Property Exchange Australia (PEXA) found that $454.7 billion worth of residential property was purchase in Queensland, New South Wales and Victoria last year and $129.6 billion was paid for in cash. i.e. no mortgage with a lender.

This represents an increase of 1.5% since 2022.

Ongoing strength in cash purchases is one factor that is driving the resilience in the housing market.

If you don’t need a mortgage to help buy a property, then the higher rates that are impacting other home owners are not going make a difference. They are immune to the effects of the RBA’s rate increases.

In fact, higher rates help these cash buyers, as they are more likely to be asset rich, have savings that are now earning higher interest. Giving them even more buying power.

As expected, cash buyers are more likely to be closer to or are retired and have accumulated assets. As the older age cohort grows, then cash purchases may become more common still. This creates even more challenges for younger families and new home buyers as they try and break in to the housing market. It is difficult to complete with someone who has cash when you know that you have to pay it all back at some stage and you’re at the whim of the RBA.

Regional areas saw the biggest percentage of cash purchases, as buyers sold more expensive metropolitan properties and moved to more affordable areas. In Victoria, the areas that saw the largest percentage were Paynesville, Mansfield, Maryborough, Point Lonsdale and Wonthaggi. All areas popular with retirees.

Conversely, the areas with the highest value of cash purchases in Victoria were Melbourne City, Toorak, Brighton, Craigieburn and South Yarra. This reflects the higher property prices in these areas.

Queensland has been the state with the highest amount of cash purchases as they have been the recipient of immigration from the southern states. Buyers are seeking better value and a warmer lifestyle.

An increase in cash purchases may be part of the housing landscape, and with it comes more challenges for regulators as they try to control inflation. There are approximately 10.8 million homes in Australia, of which 3.2 million have a mortgage – that’s a shade under 30%. The RBA is battling away to get inflation below 3%, which is proving difficult to do with interest rates their only weapon.

It will get harder with less people having any home loan.

If you’re not one of those lucky ones who do not need a mortgage, please get in touch today. A home loan may be a necessary evil, but at least I can get you one that saves you money.