What is continuing to fuel real estate demand?

What is continuing to fuel real estate demand?

Writer: Joshua Andino 

2 min read August 2021 While many consider low interest rates to be a factor in fueling real estate demand, the data would suggest that cash, not mortgages or Federal Housing Administration loans, has become the primary deal-drivers, even as one of the strongest sellers’ markets in recent years has slowly begun to level-off.

All-cash home purchases have risen to the highest levels since 2007, even as loans popular with first-time buyers continue to drop, as noted in the data from national property database Attom Data Solutions LL and reported by the Twin Cities Business Journal.

Minneapolis Area Realtors President Todd Walker discussed the myriad of factors at play in the real estate market with Invest: and explained their impact. “The percentage of cash buyers is way up. Cash gives the buyer a competitive advantage as the amount of cash available to the average citizen has increased notably over the past 6 months. We’re seeing stronger offers, and more variety in offers where people are waiving inspections and putting in escalators and other clauses. …There are many different elements to the business and to transactions that did not exist two years ago.

Homebuyers using FHA loans have dropped to the lowest point since 2007, standing at just 7.9% of all home purchases, according to Attom. At the same time, cash purchases made up 34% of all single-family home and condo sales in the 2Q21 across the country, the highest level since 1Q15.

In her own conversation with Invest:, Tracy Baglio of the St. Paul Area Realtors explained the impact of low interest rates, saying that while they may be helping to fuel the market, they are insufficient to overcome the cash advantage. “There is definitely an impact from low interest rates. … First-time buyers definitely want to capitalize on it but they are competing with baby boomers and empty nesters, who tend to have a lot of disposable cash or a lot of equity in their homes that allows them to come in as cash buyers. It’s hard for the younger generation to compete.”

A report by Redfin notes that at the same time, bidding wars remain common even if they have fallen to their lowest point since January of this year. Bidding wars disproportionately drive up the price of housing as buyers attempt to secure their offer by paying more than competitors. Minneapolis stands at the No. 26 spot, with 60% of offerings experiencing some kind of bidding war. 

“The median sales price in the Twin Cities had never crossed the $300,000 threshold, but it did last year, with the median sales price being up to $350,000. That’s unprecedented and probably not sustainable. We’ve seen declining interest in the more affordable price segments, and that reflects the inventory shortage but also new construction. People who may have been below $250,000, now are able to buy up to $300,000 because of historically low interest rates and as a result of the scarcity of inventory at the lower price points. We are seeing some dynamics in this market that may not continue long term,” elaborated Walker.