Cash Buying Trends in 2024- Why Fewer Homes Are on Market

By 2010, the Great Financial Crisis had played its course long enough for lawmakers to pass the Dodd-Frank Act. Following the first major housing crash since the Great Depression and poor economic conditions, the act paved the way for recovering the financial market by strengthening regulations and oversight. Dodd-Frank was the key to preventing the same meltdown from ever happening again while creating another issue: The Supply Crisis. 

As a result of Dodd-Frank, fewer homes were placed on the market. Without high-risk adjustable mortgages, people could use their homes as a secure and unfailing hedge against inflation. Most buyers had excellent credit and great jobs and opted for fixed-rate mortgages. Since there were far fewer foreclosures and short sales, the United States national housing inventory slowly tumbled to record lows.

In response to COVID-19, mortgage rates dropped to historic lows, causing people to take advantage of a once-in-a-lifetime opportunity. For example, if a buyer desired a $5,000 payment (principal and interest) in November 2020 when the 30-year fixed rate was 3%, they were looking at a home priced just shy of $1.5 million. With today’s stubbornly high mortgage rate environment, currently hovering near 7%, that same buyer can only afford a home at $940,000. The difference of $542,500 between the two mortgage rates is enough to stop many would-be buyers from purchasing.

In a typical market, most home purchases are primarily made utilizing a mortgage, with a smaller percentage of buyers paying in cash. We can even see this in the auto industry, with financing (mortgage) and leasing (renting) being the two most popular ways to acquire a car. However, fewer people have sufficient funds to purchase a car, let alone a home.

From 2022 on, we’ve seen a swan dive of a decrease in existing home sales in the United States. With limited inventory and demand due to high mortgage rates, fewer transactions can take place. As a result, smaller factors and changes become more evident to the naked eye. One will even notice how mortgage rate fluctuations dictate where supply and demand can move in the future.

As affordability deteriorates over time, fewer people can afford a mortgage, explaining why there are fewer home purchases. While taking a closer look, one will notice that cash transactions have not changed much over time, yet have become a much larger percentage of all transactions. With not as much movement in the market, cash transactions are viewed in a larger scope, causing many to think the entire market has shifted towards cash.

Thankfully, high mortgage rates are not here forever. Eventually, there will be a gradual relief in the federal funds rate, causing mortgage rates to fall, as well as rates tied to cars, credit, or any consumer loans. With enough relief, expect to see a shift in the housing market. As soon as mortgage rates dip into the 5's, even 5.99%, a new market will emerge, a tidal wave of movement. More transactions mean that cash buyers will be a smaller percentage of the purchasing pool.

In May of this year, 24.5% of all closed sales in Southern California (Los Angeles, Orange, Riverside, San
Bernardino, and San Diego) were cash transactions, approaching a quarter of the entire market. The cash purchased homes represented 3,530 out of a total of 14,381. In a normal pre-covid average (2017-2019) market, for May, there would typically be just over 19,000 home sales. That difference is 4,797 homes or 33% extra home sales. If the same amount of cash homes were bought with the pre-covid May average (2017-2019) for existing home sales, 18% of all closed homes would have been closed in cash, which tells an entirely different story. Unfortunately, many have created a negative narrative around the inability to purchase today due to the competition of so much cash in the market.

PERCENTAGE OF CASH CLOSED SALES BY COUNTY : JANUARY - MAY

It is crucial to understand that today’s market is not permanent and is subject to change. When that will happen is entirely unknown.

Julia Huntsman, REALTOR, Broker | http://www.abodes.realestate | 562-896-2609 | California Lic. #01188996

Article by Brennan Thomas

Cash Transactions May Soon Require Reporting by the Broker

"The Treasury Department’s Financial Crimes Enforcement Network proposed a regulation on Wednesday that would require real estate professionals to report information to the agency about non-financed sales of residential real estate to legal entities, trusts and shell companies."

Cash transactions in real estate have been a suspected source of money laundering, both in the United States and Canada, where values have increased over 3-7%. Not everyone is happy about being registered, but a new database has been set up where over 100,000 business have registered, in order to gain transparency for who is buying with all cash in real estate purchases. Anonymous shell companies and trusts will have to disclose names of actual persons involved.  See more at the Wall Street  Journal.

Julia Huntsman, REALTOR, Broker | http://www.abodes.realestate | 562-896-2609 | California Lic. #01188996

Average Selling Price for a House in Long Beach CA in 1Q 2013

For the first quarter of 2013 (January through March) in Long Beach, the MLS shows 503 single family home sales.

The sales price ranged from $98,900 (a 432 sq.ft bank-owned house) in North Long Beach to a sale for $3.8 million for a 3600+ sq.ft house on The Peninsula.  The average selling price in Long Beach for this time period was $443,772 for a 3 bedroom, 1.75 bath house between 1400-1500 sq. ft.  All cash purchases accounted for 122 of the total, or 24% of all houses sold.

• Of these homes, 18 out of the 503 houses sold for over $1,000,000 (a small percentage of all Long Beach houses), or 4%
• There were 364 houses selling under $500,000, or 72% of the total
• There were 265 houses selling under $400,000, or 53% of the total
• There were 121 houses selling between $501,000 and $999,999, or 24% of the total.

In other words, more than half of the selling activity took place at the price range under $400,000, and 88 of those purchases were by all-cash buyers, or 33% of the total number of purchases for houses sold under $400,000.  This means 72%, the vast majority, of the all-cash activity is in the lowest price range for the city. 

This is a paradise for certain sellers, and a big challenge for buyers, especially for the 1st time buyers and/or 2nd home buyers because under $400,000 is their most affordable market.  (And even though Long Beach is very competitive due to its location, some buyers are looking further south in San Diego area for lower prices.)

Cash buyers often attempt to buy at a much lower price, thinking the seller will be thrilled with them because the transaction does not require a lender or an appraisal, but often they come in very low, or much lower than what is attractive to the seller. So those offers don't always work, at least not at first. And are some sellers being unrealistic about their asking price? In some cases, yes, depending on other factors such as condition, upgrades, permitted square footage, and nearby comparables, but that is something to determine on a case-by-case basis.  Overall, the market trends in many Long Beach zip codes is going up by as much as 20% compared to this time last year.

A buyer's best protection is to be totally pre-approved with a solid pre-approval where the lender has not only their income and debt information, but their tax returns have been thoroughly reviewed as well (if possible, submitting to underwriting in advance can give additional assurance for a pre-approval).  I'm amazed at how often I hear from a hopeful property buyer who tells me they know they're well-qualified, "getting a loan will not be a problem."  If it's not a problem, do it now.  Buyers, sellers want to find out what a good loan source has to say about your loan qualifications or that your statement shows you have all the cash ready-- your own personal opinions simply will not carry much weight when you submit an offer. It is essential to accomplish this step PRIOR to looking at properties so that the seller knows qualified buyers are viewing their home. 

Please contact me for an estimate of your buying costs--I can help you with different down payment scenarios to show you what your monthly payment could be.

 

 

 

Being a Buyer In An All-Cash Competition

I hear from buyers who put in offer after offer, but don't get the house because of losing out to the all-cash buyer or mostly cash buyer. 

What does such a buyer need to do?  First of all, be prepared to be persistent, and persevere. Next, be totally pre-approved with a good lender.  Know the difference between the average "pre-qualification" letter and a good pre-approval letter from a reputable lender with a local track record and who can close on time, and not surprise you with last-minute underwriting issues that could have been avoided up front.  A good REALTOR can be of tremendous assistance here by pointing you in the right direction, not only with all buyer preparation for an offer, but with the local market. See how quickly you can close, and be willing to negotiate with the seller on some extra days to accommodate their moving date. Be prepared to provide all necessary documentation at the time you submit your offer, sellers want to know they can close the deal with motivated and qualified buyers, not get stuck putting the house back on the market again.

Keep in mind that cash buyers may not offer a seller the most attractive offer, and that a good price from a well-qualified buyer who is getting a loan may stand a very good chance with a motivated seller.  Keep your offer terms clear and simple, and bear in mind that trying to change your contract terms after acceptance by the seller could cause them to cancel and go with one of their backup offers.

Let the seller know you are very interested in their property as your next home (presumably you are), and tell them that when you make an offer.

Last, but not least, review the 10 items to the right to remind you about being a successful buyer! I'm experienced with both 1st time and repeat buyers and can help you position yourself towards success for your next purchase, contact me at 562-896-2609.

How To OutBid the All Cash Buyer

The real estate markets in many areas, and not just in the United States, have much to be thankful for in the all-cash buyer. The all-cash transaction will be able to avoid a buyer's loan and appraisal requirements, in a market where appraisals alone have held up -- or killed -- some transactions completely. Appraisal issues, due to guideline changes, have eased up a little, but this does not lessen the desirability of the all-cash buyer in the eyes of the seller. This is especially true for "difficult" properties, such as major fixers, and condominiums in HOAs where the association may have other legal or financial challenges, including too many owners who haven't paid their monthly dues on time.
But it's a knife that can cut both ways. Some all cash buyers traditionally have believed that the seller will sell for a lower price in order to avoid a buyer's loan process. While that strategy may apply for certain cases, sellers are still just as concerned as ever about their net cash at closing. In a tougher market however, some sellers do prefer to get to a faster closing if they can accept the buyers terms. Buyers with loans who are attempting to compete with all-cash buyers should take a look at the percentages below, and also learn the specific neighborhood where they are likely to compete. The National Association of Realtors states that all-cash buyers made up 33% of all buyers in February, 2011. In 2010, the total was 59% nationally.

All Cash 1st Quarter 2011 Closings for Single Family Homes and Condominiums:

• Long Beach (23%) - 155 Cash out of 665 Total:  $254,091 average price, up to $1,800,000.
• Cerritos      (23%)  - 19 Cash out of  84 Total:     $382,210 average price, up to $990,000.
• Seal Beach   (32%) - 8   Cash out of 25 Total:      $440,706 average, up to $800,000 .
• Lakewood   (9.59%) -  17 Cash out of 163 Total:  $330,173 average, up to $500,000.
• Huntington Beach (20%) - 69 Cash out of  344 Total:  $452,409 average, up to $1,500,000. 

Therefore, buyers need to prove their strength to the seller, because if your seller has a lot of equity in their property, they are less likely to be interested in a "low-ball" cash offer.

Before shopping for a new home, go to a recognized lender and get completely pre-approved, by allowing your credit to be run and submit all requested to documentation to the loan officer.
Learn what the list-to-sell percentage is in your neighborhood of interest so that you can make a good offer that applies to the true value of the home.
Submit your lender's pre-approval letter and contact information with your offer.
Write in a strong deposit amount, at least 2% or higher, with your offier--this shows your commitment to the seller.
Understand the terms and conditions which may be associated with a short sale or and REO property: they are not the same negotiating experience as with an equity seller.
Be prepared to act quickly--you may not have days to decide if you want the property or not.
Have the patience and fortitude to keep looking if you lose an offer in the beginning, but asking some questions up front through your agent may help to avoid the worst calamities, and may help you find out what's important to the seller. If you can be flexible, your chances may improve.

And also remember, sometimes the cash deals fall apart also.