More Americans are buying homes in all-cash deals, according to a new report. But real-estate experts say this increase may not be a good sign for the health of the housing market, which may also be impacted by the Federal Reserve’s decision to pull back on its bond-buying program.

All-cash purchases accounted for 42% of all sales of residential property in November 2013, up from 39% during the previous month, according to data from real-estate data firm RealtyTrac released Friday. “This is still a very cash- and investor-driven market,” says Daren Blomquist, vice president at RealtyTrac.

The cities with the biggest month-over-month jumps in the number of all-cash sales, according to RealtyTrac, included Florida (63%), Georgia and Nevada (both 51%), South Carolina (50%) and Michigan (49%). This helped boost overall sales of U.S. residential properties, which sold at an annualized pace of 5.1 million in November 2013, a 1% increase from the previous month and a rise of 10% from a year ago.

The decision by the Federal Reserve Wednesday to reduce its bond-buying program to $75 billion per month starting in January, from $85 billion per month currently, may also encourage more cash-purchases — at least for those who can afford it, Blomquist says. “They’re going to do everything they can to keep interest rates low, which may be tough to do,” he says. To reduce cash buyers, he says there will need to be low interest rates and a cooling off in home price appreciation. “Otherwise, you’ll see the market skew even further toward cash buyers,” Blomquist says.

When interest rates went up slightly in June, there was a notable increase in cash sales, Daren Blomquist says. “Some markets are more interest-rate sensitive than others based on affordability,” he says. “Just a slight increase makes homes a lot less affordable.” In fact, another report by Goldman Sachs in August was even more strongly in the cash-is-king camp, estimating that cash sales now account for 57% of all residential home sales versus 19% in 2005. Walt Molony, a spokesman for the National Association of Realtors, says that the association’s estimate of the share of the market made up by all-cash buyers is lower than others’, at 31% in July, but that it’s still at an all-time high.

Molony says that investors make up 32% of all-cash buyers (70% of all investors pay cash), up from 31% in October and 30% in November 2012, while retirees who’ve built up equity in their homes or paid off their mortgages account for around 12%. The rest include vacation-home buyers and foreign buyers.

While cash buys help explain the surge in home sales over the past year, some experts say it’s an unsustainable trend — and one that should be greeted with caution. “The rise in cash sales is not a good long-term trend for the housing market,” Blomquist says. Although RealtyTrac doesn’t identify who has cash-in-hand, experts say wealthy Americans and downsizing retirees account for some of these all-cash deals. Investors who are keen to make a profit by buying low and renting those properties — or flipping them — also drive up the number of all-cash deals, he says. None of these three groups — flippers, retirees and the wealthy — are big enough to sustain the market in the long run, he says. If it remains dominant in the long run, cash buying “will have a chilling effect on home sales and prices,” Blomquist says.

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If tapering does lead to higher mortgage rates, some home buyers might buy with cash rather than a mortgage, says Jed Kolko, chief economist for real-estate firm Trulia. However, many cash buyers are investors, and now that prices have risen, investor activity is also starting to decline, he says. (House prices in 20 American cities rose more than 13% in the 12 months leading up to September, according to the S&P/Case-Shiller index of property values, the biggest rise since February 2006.) “On balance, the all-cash share of purchases will probably decline next year, as fading investor activity outweighs the impact of higher rates.”

Another challenge for the housing market in 2014: The pool of potential buyers is being limited thanks to a combination of tight lending standards and rising interest rates, experts say. “Cash is king in hot markets where getting the sale done now matters and where investors are driving price recovery,” says Susan M. Wachter, professor of real estate and finance at The Wharton School at the University of Pennsylvania. Cash’s dominance is a sign of the fact that it’s more costly and hard to get financing, she says, “that’s a bad thing.” On the upside, interest rates are still historically low, she says. “Now is a time to lock in if you are a buyer.”

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