Investors, Foreign Buyers Cashing in on Market

Daily Real Estate News  |  April 11, 2011  |
Investors, Foreign Buyers Cashing in on Market
With affordability at an all-time high, the number of investors and international buyers taking advantage of bargains has reached a record number in all-cash purchases — and some experts predict that number will only grow higher.

A record 33 percent of existing-home sales were made to cash buyers in February, the National Association of REALTORS® recently reported. The proportion of cash deals could hit 40 percent by the end of this year, predicts Thomas Popik, research director for Campbell Communications in Washington, which conducts monthly surveys of 3,000 real estate brokers.

“Lenders have only been willing to lend to the cream of the crop in terms of credit scores,” says Walter Molony, an NAR spokesman. “As a result, you’re seeing a depressed level of traditional buyers.”

But it’s not just investors moving in: Many of these cash deals are also coming from a growing number of international buyers. About 55 percent of international buyers paid cash for their U.S. homes, according to an April 2010 report by NAR.

The Cash Buyer Advantage?
Cities where about half of all purchases were done with cash include Detroit, Miami, Las Vegas, and Phoenix, in which prices have dropped considerably and foreclosure rates remain high, says Oliver Chang, a housing market analyst with Morgan Stanley.

Short sales and foreclosures accounted for 59 percent of last year’s cash sales, according to a report by Morgan Stanley.

“You buy the house at a discount with cash. Then you flip it almost immediately to the first-time home buyer who’s using a mortgage, simply because they were not able to buy at the foreclosure sale,” Chang says.

Lenders increasingly reject mortgage applications for foreclosed properties because appraisals are often too far below the agreed-upon price or the transactions take too long to close, says Popik.

With tightened lending standards, cash purchases can provide buyers with more leverage and allow buyers to close properties more quickly.

Mike Simmons Troy, a Detroit real estate investor, says that if a house is listed at $40,000 and a buyer offers $35,000 cash, “nine times out of 10, the bank will take the cash.”

Source: “Cashing in on Bargains,” Detroit Free Press (April 10, 2011)