Home Buying Turning Insane

Updated July 2026

In case you have not heard, you better have cash, either your own, borrowed, or begged, to get into the U.S. housing market right now. This is a real reversal from the recent past, when homeowners typically financed homes through bank loans or mortgages backed by Fannie Mae or Freddie Mac.

Today, a steadily increasing number of homes are cash-only. This trend made headlines in the New York Times’s front-page report on weekend real estate activity.

Who’s to blame? Investors.

“All-cash buyers, typically investors eager to renovate and quickly resell or rent out homes, are making it more difficult for first-time buyers,” the New York Times reported, citing data from the National Association of Realtors (NAR).

Flipping has become a mainstream strategy. In 2013, more homes in California were flipped in a single year than at any point since 2005, according to the California Association of Realtors. The state’s flip rate hit 40% in Q1 2013, up from 28% in 2012.

This isn’t confined to California. Cash purchases are surging in New York City, Boston, San Francisco, Miami, and Phoenix. In New York City, 62% of home sales were cash transactions in early 2013, the New York City Department of Finance confirmed.

Sellers in these markets often receive offers minutes after listing. Homes selling for 10 to 15% above asking price are not uncommon. The competition is so intense that many realtors now describe the market as an “insane asylum.”

That’s a sharp contrast to just a year earlier. In early 2012, buyers were hesitant. Homes were listed below original purchase prices, and inventory remained stagnant. Many owners held onto properties with little hope of recouping their losses.

Now the pendulum has swung. The Federal Reserve’s low-interest-rate policy, combined with rising home prices, has made real estate an attractive asset class. Investors, both small-time flippers and large institutions, have responded accordingly.

Blackstone Group, one of the largest real estate investors in the U.S., has expanded its residential portfolio to over 150,000 units by mid-2013, according to filings with the SEC. JPMorgan Chase has also increased its holdings in single-family rentals through its mortgage servicing arm.

For first-time buyers, this shift is deeply frustrating. A 2013 report from the Urban Institute found that 78% of first-time buyers said cash offers made it harder to compete, and 61% had to increase their down payments to stay in the market.

But what about investors?

For those in the game, the rules have changed. Cash is king. The ability to close quickly and without financing approval gives investors a real edge over a buyer waiting on underwriting. According to the Consumer Financial Protection Bureau (CFPB), 33% of all home purchases in 2013 involved investors, up from 22% in 2010.

For those without immediate access to cash, the solution often comes from unconventional sources: friends, family, or a spouse’s emergency fund get tapped more than people admit. Some turn to private lenders like SoFi or Lending Club, which reported a 43% rise in investor-backed loans in 2013.

Still, not all markets are equally affected. While San Francisco and Phoenix saw prices rise 26% and 24% year-over-year, respectively, in Q1 2013 (S&P CoreLogic Case-Shiller Index), cities like Detroit and Cleveland remained stable or even declined.

Why Cash Is Dominating the Market

Investors dominate the market not by choice, but by necessity. In 2013, mortgage lenders like Wells Fargo and Chase tightened credit standards. The average FICO Score required for approval rose to 720, up from 680 in 2010.

Loan-to-value ratios dropped. The average mortgage now required a 20% down payment, even for conventional loans. For those with lower scores or higher DTI (debt-to-income) ratios, approval became nearly impossible.

That left cash buyers, whether individuals, hedge funds, or private equity firms, as the only viable option in the fastest-moving neighborhoods.

According to a 2013 report from the Federal Reserve, 47% of all home purchases in top-tier markets were made with cash. In contrast, only 14% of purchases in low-tier markets were cash-only. That gap is the whole story in one number: the closer you get to a hot coastal metro, the less a mortgage pre-approval means to a seller.

Here’s a worked comparison worth sitting with. On the table below, Phoenix’s median cash price is $228,000 versus $224,000 for financed buyers, a gap of only $4,000. But the real cost isn’t the sale price, it’s the carrying cost of a financed offer that takes 30 to 45 days to close versus 7 to 10 for cash. At the 4.7% average 30-year fixed rate reported by Freddie Mac in June 2013, a buyer financing $224,000 with 20% down (a $179,200 loan) pays roughly $928 a month in principal and interest. Over a full year that’s about $11,136, money a cash buyer skips entirely on interest, though they give up liquidity by tying up six figures in one asset. Neither position is free; one trades cash flow for flexibility, the other trades flexibility for speed.

How This Affects First-Time Buyers

For first-time buyers, the situation is dire. The National Association of Realtors reported that average home prices in 2013 were 18% above the 2009 peak, while median household income rose only 3.2% over the same period.

Bidding wars are now routine. In San Francisco, a three-bedroom condo listed at $1.2 million sold for $1.48 million within 24 hours, $280,000 over asking. Similar scenarios played out in Miami and Phoenix.

Many first-time buyers now rely on down payment assistance programs. The U.S. Department of Housing and Urban Development (HUD) reported that 21% of first-time buyers in 2013 used a government-backed loan, including FHA loans with a minimum 3.5% down payment.

Consider a reader with a 640 credit score, $9,000 saved, and a target home price around $210,000, roughly the entry point in a mid-tier Phoenix suburb. A 3.5% FHA down payment on that price is about $7,350, leaving a small cushion for closing costs and inspection fees. That buyer clears the FHA’s minimum 580 FICO threshold comfortably, but they are still bidding against cash offers that close in a week instead of 45 days. In that situation, an FHA offer is usually only competitive if the seller isn’t fielding multiple cash bids, or if the buyer can waive a long inspection period and still get an appraisal done fast. Sellers with several offers on the table have little reason to wait on financing when a cash buyer is ready to sign.

Still, even FHA loans are becoming harder to qualify for. Lenders now require a minimum FICO Score of 580 for FHA approval, and many enforce tighter debt-to-income limits.

Investor Behavior: Flipping, Rentals, and Long-Term Play

Flipping isn’t just about short-term gains anymore. Investors are increasingly holding properties long-term, especially in cities with strong rental demand.

In New York City, average rent for a one-bedroom apartment rose 8.7% in 2013, per the New York City Rent Guidelines Board. In Phoenix, rental rates climbed 12.3%, one of the fastest increases in the nation.

Some investors are using platforms like Airbnb to monetize properties. By mid-2013, over 18% of rental listings in Miami and San Francisco were classified as “short-term rentals,” according to AirDNA data.

But this trend carries risks. The Federal Reserve warned in its 2013 Financial Stability Report that “excessive investor activity could lead to overvaluation in certain markets.”

Market Saturation and Future Outlook

Rising prices are not sustainable forever. The National Association of Realtors projected that new construction would increase by 12% in 2013 compared to 2012, driven by rising demand and easing building permits.

By Q3 2013, housing starts had climbed to 650,000 units annually, up from 520,000 in 2012, according to the U.S. Census Bureau.

More supply could cool prices in some markets. But in cities like San Francisco and Miami, where zoning laws limit new construction, supply constraints persist.

Still, the Fed’s low rates are expected to keep mortgage demand high. The average 30-year fixed rate in 2013 hovered near 4.7%, down from 5.4% at the start of the year, according to Freddie Mac.

Comparison: Cash vs. Financing in 2013 Markets

A financed offer is usually only worth submitting over a competing cash bid if it comes in at least 3 to 5% above the cash offer and includes a shortened inspection window; sellers weighing risk against price will rarely accept parity. Buyers who cannot stretch that far, or who need more than 30 days to close, should expect to lose repeat bidding wars in San Francisco, Phoenix, or New York City regardless of how strong their pre-approval looks.

Frequently Asked Questions

Why are so many homes being sold in cash in 2013?

Investors dominate the market, especially in high-demand cities. Cash offers close faster and carry no financing risk. According to the National Association of Realtors, 62% of sales in New York City were cash-only in early 2013.

How does this affect first-time buyers?

First-time buyers face steeper competition. They must either raise down payments or accept longer closing timelines. The Urban Institute found that 78% of first-time buyers reported difficulty competing with cash offers in 2013.

What’s the average down payment for a conventional loan in 2013?

The average down payment for a conventional loan was 20%, up from 15% in 2010. Lenders also raised FICO score requirements to 720 on average, per the Consumer Financial Protection Bureau.

Are home prices still rising in 2013?

Yes. In Q1 2013, home prices rose 18% year-over-year nationally, according to the S&P CoreLogic Case-Shiller Index. Phoenix saw a 26% increase, and San Francisco a 24% increase.

Can I still get an FHA loan in 2013?

Yes, but with stricter rules. The minimum FICO Score for FHA loans is 580, and borrowers must meet DTI limits. The U.S. Department of Housing and Urban Development (HUD) reported that 21% of first-time buyers used FHA loans in 2013.

Is flipping still profitable in 2013?

Yes, but margins are tightening. In California, the average flip profit was 15% in 2013, down from 24% in 2011. High competition and rising material costs are reducing returns.

What role do institutions like Blackstone play?

Blackstone became one of the largest residential landlords in the U.S. by 2013, owning over 150,000 homes. The company uses cash to buy properties and rents them out through its real estate division.

How does the Federal Reserve affect home prices?

The Federal Reserve kept interest rates near zero in 2013, making borrowing cheap. This boosted demand and pushed prices up. The average 30-year fixed rate was 4.7%, down from 5.4% at the start of the year, according to Freddie Mac.

Are home prices in Detroit and Cleveland still falling?

Yes. While national prices rose, cities like Detroit and Cleveland saw prices decline. The S&P CoreLogic Case-Shiller Index showed that Cleveland’s home prices fell 3.2% year-over-year in Q1 2013.

Can I compete with cash buyers if I don’t have cash?

Yes, but only with preparation. Use a pre-approval letter from a lender like Chase or SoFi. Offer a strong down payment (even if not full cash). In some cases, a seller may accept a loan offer if the buyer’s credit score is high and the DTI is low, though in the hottest markets even a strong pre-approval loses to cash more often than not.