Filed under: Buying, Financing, Investing
By Bob Sullivan
In many parts of the country, housing prices gave returned to pre-recession levels. That’s good news for sellers, bad news for buyers. But buried within the latest housing data is some good news for everyone — everyone on Main Street, anyway.
All-cash buyers seem to be finally retreating. The percent of homes purchased by all-cash buyers in May was close to its long-term average going back to January 2000 of 24.8 percent, and well below its recent peak of 42.2 percent in February 2011, according to data released Thursday by RealtyTrac. It’s one sign that the housing market is on the road back to a normal, “how do we find a place to live?” market, and away from the “how do I make a quick buck?” market.
What’s an all-cash buyer? Someone — or something — with a lot of money. All-cash buyers don’t need mortgages. They just show up with a check and buy a home. Generally, they are big investors such as hedge funds and foreign entities, buyers with no intention of living in the homes. They skew the market by soaking up inventory that could be purchased by a young family looking for a first-time home purchase. They also make such buyers look bad. If you were a seller and had two offers — one all-cash, and one that still required financing to be arranged — which would you choose?
“As housing transitions from an investor-driven, cash-is-king market to one more dependent on traditional buyers, sales volume has been increasing over the last few months and is on track in 2015 to hit the highest level we’ve seen since 2006,” said RealtyTrac vice president Daren Blomquist.
The out-of-whack housing market has been suffering from a record level of all-cash buyers for the past several years — well above historical norms, according to mortgage expert Logan Mohtashami. He says the retreat of cash buyers is a positive development.
“This is a positive as total sales are rising with less cash buyers as a part of the market place…. Less cash means more traditional buyers in the system, which means the supply and demand balance is more correlated to Main Street economics,” Mohtashami said. “[This year] is trending between 24-27 percent, which is still very high, but this is the first time it’s under 30 percent in every report.”
Of course, the shrinking number of cash buyers doesn’t mean prices are going down. In Manhattan, for example, the average sales price for an apartment just hit a record high — $1.87 million. And it’s not just New York. Home prices in Dallas, Denver, and San Francisco are positively bubble-icious, rising about 10 percent last year, soaring past pre-recession levels.
But with more first-time homebuyers and less inventory, at least the dynamics of home buying might change a bit.
“The competition in the marketplace is … different,” said Craig King, chief operating officer at Chase International brokerage, covering the Nevada markets of Lake Tahoe and Reno. “While inventory is tight, many investors have dropped out of the market and cash deals are not as prevalent as they were. Even in multi-offer situations, much has been equalized. This is great news for first-time buyers.”
If you’re looking to buy a home this year, make sure you know how much home you can afford (here’s a calculator). And be sure to check your credit, since improving your credit scores can save you thousands of dollars in interest over the life of your mortgage. You can get a free credit report summary every month on Credit.com to see where you stand.