Most of us have heard the stories about how many cash buyers there are currently in the housing market. In the years before the housing meltdown, about 85 percent of US home sales were individuals purchasing with a mortgage, about 10 percent were cash purchases, and the remaining 5 percent were distressed sales or foreclosures.
Today, national statistics indicate 40 percent of home sales were individuals using a traditional mortgage, 43 percent were all-cash, 12 percent were distressed sales and 5 percent were flips. This is a staggering shift.
If you are a first-time home buyer, pinching hard-earned pennies to squirrel together a down-payment, the thought of buying with cash boggles the mind. Who has the money to buy a home outright? Are these purchases being made by the wealthy one percent we hear so much about? Are the big investment conglomerates snapping up affordable real estate then holding on to it as investment properties? Yes to both, but that’s not the whole story.
There are also individual investors buying up foreclosed homes then either renting or flipping them, as well as a growing number of Boomers who have lived in their homes for decades, paid off their mortgages and are downsizing into a smaller home. This group uses cash earned in selling their home to make a new purchase.
Finally, the Seattle area attracts a great many foreign investors thanks to the relative safety of the US housing market and the increasing stability of the Seattle economy. These investors often use cash simply because of the difficulties obtaining financing in the US.
Seattle is less affected by this phenomenon than other cities. One report recently indicated that 74 percent of homes in the Fort Myers, Florida area are paid for using cash! Here in Seattle, we are seeing something vastly different. In the first half of 2014, the national statistic sits at 43 percent, but the YTD figure for Capitol Hill is 29 percent, whereas other Seattle neighborhoods sit between 19 and 23 percent.
The reason Seattle is experiencing lower numbers than the national statistic is simply because our area has a higher cost of living – including home prices – than most of the rest of the country. It’s harder to come up with $500,000 in cash to pay for a great Seattle home than it is to pick up a $60,000 condo in Ft. Myers, right?
The rate of cash purchases in Capitol Hill is higher than our neighbors in the city in large part because Capitol Hill is immensely popular and our high rents reflect that popularity. People really want to live in our neighborhood (can we blame them?), which means that investors who choose to rent their acquisitions can ask a higher rate than they can in other parts of the city.
Boomers and investors are not representative of the majority of buyers in a healthy market by a long shot. What about the first-time home buyers, as well as the “moving-on-up,” credit-dependent buyers who are truly the mainstay of a healthy housing market? These folks are sometimes edged out when prices, fueled by cash, soar.
The low (home) inventory in Seattle leads to situations in which a property will receive five or ten – and sometimes more than 20 – offers from eager (and frustrated) buyers. Cash offers are often appealing to sellers who don’t want to risk losing a deal if the buyer’s financing falls apart at the last minute.
If you’re in the market for a new home and you want to smooth the process, try starting your search in the fall and get pre-approved from your chosen lender. This typically offers assurances to sellers about your ability to close the deal and will lend some relief to you as the market seasonably loosens up a bit and becomes less competitive. Be sure to work with a high quality broker who knows how to put together a terrific offer and you will have the best chance at landing the perfect place.
Don’t despair, a good Realtor will advise their seller to accept the best deal for them – and this is often a deal that is financed.