Cash Remains King in Weak Market

Cash buyers are taking advantage of prices, and are betting that they cannot go much lower; last month they accounted for 30% of all existing home sales, up from 25% in May 2010.

 

Just two years ago all-cash buyers accounted for just 12% of sales, but now many are being enticed by the prospect of rental income and incredibly low prices. While it's certainly true that they have helped curb further price falls, there is little sign of any price increases.

The median price of an existing single family home dropped 4.5% to $166,700 in May of this year compared to May 2010, and sales fully support were also down by 15% compared to the previous May.

Jim Gillespie, CEO of Coldwell Banker Real Estate, is thankful for all-cash buyers and says "We would be in much worse shape than we are; they recognise that this is the smartest time to buy." Prices are down by 33% from their 2006 peak, and cash buyers are especially active in areas hardest hit by foreclosures.

 

In Las Vegas, which has the dubious honor of being the foreclosure capital of the US, cash buyers accounted for 49% of the first-quarter sales, compared with 20% during the first quarter of 1997. In Phoenix cash buyers accounted for 44% of first-quarter sales, up from 25% in 1997, according to data from Zillow. Zillow chief economist, Stan Humphries sees this as being "positive news."

There's no doubt that a lot of them are getting great value, and according to Walt Danley, president of luxury real estate firm The Walt Danley Group in Arizona, they are also able to negotiate better deals as sellers know that offers cannot fall through due to lack of financing. According to him discounts of 5% are typical.

Although many of these buyers are foreigners, investors looking for immediate income are also big buyers.