If you are looking for a new home this year, you might need to be prepared to pay cash. According to data from RealtyTrac, the number of all-cash deals for home purchases reached record levels of 43%, up a massive 19% compared to a year earlier.
These figures are the highest seen since RealtyTrac began tracking these types of transactions in early 2011. The article in CNNMoney.com points out the increase is due to a couple of different factors. These are strict lending conditions that can make it difficult for a buyer to get a mortgage, and competition from others looking to purchase homes, due to shortage of inventory. These two factors both favor the all-cash buyer, and even purchasers who would normally choose to finance property are opting to make all-cash offers in order to appear more attractive to sellers. Those who are able to pay in cash are more likely to jump to the front of the queue.
It’s hardly surprising that sellers will choose to opt for cash bids as they stand a better chance of being able to close on time. Those buyers who need financing can encounter delays due to the current strict mortgage underwriting standards. It’s worth pointing out that the number of cash sales is still increasing in spite of fewer institutional investors who would previously have bought up short sales and foreclosures with cash. Nowadays the demand is coming from individual investors, as well as those looking to purchase a second home, and from owner occupiers.
According to data from ReatlyTrac, those purchasing in cash paid an average of $207,668 for homes during the first quarter of this year, a discount of approximately 13% on the homes average estimated value. This discount may be due in part to the fact that a quarter of sales were for homes already in foreclosure, as such properties typically sell for less than the market value.
The highest level of all-cash sales was for properties in Cape Coral, Florida, accounting for nearly 74% of sales during the first quarter of this year. Cash sales were also high in four other cities in Florida which were Miami, Sarasota, Lakeland and Palm Bay. Apparently coastal California, Miami, Boston and New York are all attracting a lot of foreign buyers willing to pay in cash. Latin Americans are purchasing property in Miami, with down payments of 50% or more on apartments still being constructed, and the balance being paid in cash once the property is ready for occupancy. Properties in California are largely being bought by Chinese nationals and immigrants who are choosing to purchase single-family homes.