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Title: Cash is King? Evidence from Housing Markets

Citation Type: Miscellaneous

Publication Year: 2020

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Abstract: In Los Angeles, the fraction of all-cash home purchases quintupled during the last decade, with the growth being more pronounced among experienced buyers, flippers, and out-of-state buyers. Exploiting these variations, we quantify a new source of housing market frictions: financing risk, referring to delays and uncertainties that a seller faces in closing a transaction with a mortgage offer. Using the transaction level data, we find that an all-cash purchase is associated with a 33% shorter time to close and a 5% discount in the sales price. The estimate is robust to controlling for unobserved house and buyer attributes through a rich interaction of fixed effects as well as an instrumental variable strategy. We further find that the estimated cash discount is larger among more experienced buyers and smaller among out-of-state buyers, suggesting the importance of an informational advantage when a buyer bargains over a cash offer. Finally, our market level analysis shows that the rising all-cash purchases help mitigate the impact of economic shocks on house prices.

Url: http://faculty.las.illinois.edu/hyunhong/cash_buyer.pdf

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Authors: Han, Lu; Hong, Seung-Hyun

Publisher: University of Toronto

Data Collections: IPUMS USA

Topics: Housing and Segregation, Other

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