Comparing Cash vs Financing

These past two years have been a real estate frenzy, thanks to the pandemic and historically low mortgage rates. Now, as mortgage rates increase, with average rates now topping 5%, the highest level since November 2018, mortgage applications are slowing. Will this mean a slow down in the real estate market, or simply, an uptick in cash (vs financing) real estate purchases?

In our recent Q1 2020 Market Report, we reported that in Flathead County, cash buyers represented 28% of all closed sales of Single Family Residences. Which made us curious… has this number increased or decreased as of late? How does it compare with other real estate sales? Are the numbers drastically different between counties?

If you’re curious too, read on, as we slice and dice the data, diving deep to answer these questions – and provide insight into cash vs financing in today’s Western Montana Real Estate market.

Editor’s Note: Scroll down past the charts & graphs to read our commentary

How Cash Sales Compare

From pre-pandemic to current day Q1, we’ve sliced the data to show what percentage of closed sales were cash purchases (eg: 54% of Q1 2022 condo sales in Flathead County were cash).

Flathead CountyMissoula CountyRavalli County
Q1 2022
All Residential33%23%28%
– Single Family 28%22%26%
– Condo54%56%33%
– Townhome29%1%20%
All Land65%56%61%
Q1 2021
All Residential28%20%34%
– Single Family 29%17%32%
– Condo37%45%0%
– Townhome20%18%0%
All Land70%49%63%
Q1 2020
All Residential21%16%23%
– Single Family 18%14%21%
– Condo33%26%0%
– Townhome21%17%50%
All Land72%50%59%
Q1 2019
All Residential25%18%26%
– Single Family 23%15%26%
– Condo30%33%29%
– Townhome41%14%100%
All Land68%66%64%
Percentage shows Cash Sales vs. Total Sales. All data from the Montana Regional MLS.

Whitefish Residential Cash Sales

In Q1 2022, there were 108 Residential closings in Whitefish, Montana. Of those, 41 were cash. The breakdown of those total vs. cash sales is as follows:

Total SalesCash Sales
Single Family4916 (33%)
Condo3114 (45%)
Townhome2710 (37%)
Other11 (100%)
TOTAL RESIDENTIAL10841 (38%)

Another way to slice the data is to look solely at the 41 Residential cash sales in Q1 2022, and dissect the percentage of each:

Q1 2022 Whitefish Residential Cash Sales

Missoula Residential Cash Sales

In Q1 2022, there were 202 Residential closings in Missoula, Montana. Of those, 44 were cash. The breakdown of those cash sales is as follows:

Total SalesCash Sales
Single Family16233 (20%)
Condo169 (55%)
Townhome201 (1%)
Other41 (25%)
TOTAL RESIDENTIAL20244 (22%)

Here is the breakdown of Residential cash purchases in Missoula in Q1 2022:

Q1 2022 Missoula Residential Cash Sales

So What?

Using Cash to Buy Land?

Cash sales far outweigh financed when purchasing raw land. Interest rates on land are significantly higher than residential loans, with 15 year rates (vs. 30 for residential) and also require a higher down payment. For those with the cash to do so, typically it pencils out to purchase raw land without financing.

Comparing Whitefish and Missoula

This past quarter, even with almost 50% less Residential closings, Whitefish saw 38% of its closings use cash, compared to only 22% in Missoula. However, of those closings, Missoula saw significantly higher cash purchases of Single Family Residences (75% of all cash closings were of SFR’s) compared to Whitefish (39% of all cash closings).

As Whitefish is considered a resort market, it has many second-home buyers, purchasing condos at the Ski Resort or in town, as investment properties.

An Increase in Cash Sales

Nationally, cash sales have increased significantly, from 16% in July 2020 to 23% in July 2021 (peaking at a high 25% in April 2021), according to the National Association of Realtors. Here in Western Montana, cash sales increased during that same period, although not as quickly in Flathead or Missoula Counties as in Ravalli County.

Nationally, iBuyers and Fin-tech companies have recently stepped into the market, accounting for some of the uptick. In Western Montana, while we don’t have the quantitative data to support, qualitatively, we’ve seen an uptick in 1031 Exchanges locally. 1031 Exchanges are the swap or purchase of one investment property for another that allows capital gains taxes to be deferred. Many savvy investors are using real estate to park their money, as they see the Western Montana real estate market a great hedge against inflation.

Is Cash King?

Typically, Sellers prefer cash sales because they don’t want the uncertainty of a sale falling through if a Buyer can’t obtain financing. However, if you don’t have cash, there are other ways to make your offer stand out if you don’t have cash. We highlighted a few ways to help your offer stand out HERE.

Tangible assets like real estate get more valuable over time, which makes buying a home a good way to spend your money during inflationary times.

Natalie Campisi, Advisor Staff for Forbes

Should I Finance?

Even as mortgage rates increase, now is still an excellent time to invest in real estate. Why?

  • While increasing, Mortgage Rates are still lower than they have been in the past (see below graph)
  • Locking in a Mortgage Rate will effectively shield you from increasing housing payments (whereas, if you are renting, you don’t have that same benefit)
  • Traditionally in periods of inflation, real estate values increase as well. According to Natalie Campisi, Advisor Staff for Forbes,Tangible assets like real estate get more valuable over time, which makes buying a home a good way to spend your money during inflationary times.
Chart represents weekly averages for a 30-year fixed-rate mortgage. Source: Freddie Mac

Are you looking for property in Western Montana? Partnering with an Agent who knows the market and can help you navigate – whether you’re buying with cash or financing – is imperative. Contact us and let us show you what Revel’s white glove concierge service looks like.

Kyna Williams

Kyna Williams

Kyna Williams has spent her entire career telling stories for world-renowned brands like Nike and Underwood wine-in-a-can. Now, she joins Revel as CMO and COO. On any given day, you can find Kyna negotiating ad buys, brewing a pot of coffee or assisting agents with their listing presentations.

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