Paying cash for homes on the rise
With rock-bottom home prices and tighter lending standards in place, homebuyers with ample bank accounts are coming off the sidelines.
Have a couple hundred thousand dollars burning a hole in your pocket? Now may be the time for a visit to your real-estate agent.
Investors and bargain-hunting home seekers are betting that home prices have bottomed out, giving depressed housing markets like Miami-Fort Lauderdale and Phoenix a shot in the arm, The Wall Street Journal reports.
According to the National Association of Realtors, 28% of home sales last year were cash transactions. That’s double the 14% of cash sales recorded in October 2008, when NAR first tracked that data.
Zillow reports that more than half the sales in the Miami-Fort Lauderdale area last year were cash transactions. The flush buyers helped Miami prices rise 15% year over year.
Forty-two percent of buyers in Phoenix paid cash in 2010, according to Raymond James’ equity research division. That’s more than triple the percentage of 2008.
The difficulty of getting a loan in today’s economic climate has fueled cash purchases.
"The rates are great but the underwriting is brutal," Henry Schlangen, an agent with Pacific Union International in the San Francisco Bay Area. "They hang these people upside down and shake them till they see what falls out of their pockets. So people are buying with cash and maybe they'll [refinance] later."
Who can afford to plunk down cash for a home in this economy? It’s not just high rollers. Many are cashing out parts of their investment portfolios to jump in the market.
Virginia Hall-Busch, a 62-year-old piano teacher, told her real-estate agent to keep an eye out for deals on historic homes in Stone Mountain, Ga.
From the WSJ:
A few days later, Hall-Busch, 62, got a call about a 1918 bungalow with three bedrooms and one bathroom listed for "short sale," which in the real-estate world means at a price lower than what's owed on it. The home had been on the market for $159,000, then dropped to $129,000 and then to $79,900.
"I offered them 50," she said. "I figured, it wasn't like I needed a place to live. I can afford to be a little cocky here."
Hall-Busch completed the purchase for $52,000 last October.
Of course, not all buyers – or investment portfolios – are created equal. Richard Stoker, a 73-year-old retired sales executive, recently cashed out some investments and sold a Roy Lichtenstein painting and an Alexander Calder mobile for his purchase of three Miami Beach condos. The prices? $1.8 million, $1.2 million and $1 million.
Stoker doesn’t plan on renting any of the properties out . He and his wife will live in one, his son may live in the other, and the third will be reserved for his older dog and guests. Let’s hope the dog gets the cheap one.
About Teresa Mears
Teresa Mears is a veteran journalist who has been interested in houses since her father took her to tax auctions to carry the cash at age 10. A former editor of The Miami Herald's Home & Design section, she lives in South Florida where, in addition to writing about real estate, she publishes Miami on the Cheap to help her neighbors adjust to the loss of 60% of their property value.