While Cash Remains King Lending Environment Continues to Support our Market.
TEX Jay PArker / Photo Courtesy of Douglas Elliman
Fwith a financial contingency. In August, 69% of all home sales in South Florida were cash, with a statewide rate of 66% according to data from Realty Trac. Five years ago, near the height of the boom, cash deals were rare, representing just under 20% of all sales, according to the Miami Association of Realtors. Some seller’s agents tell potential buyers taking out mortgages not to even bother placing offers on the homes.
"The surge in cash sales seems counterintuitive, given that mortgage rates are below 5 percent, making financing an attractive option"
The surge in cash sales seems counterintuitive, given that mortgage rates are below 5 percent, making financing an attractive option. Appropriately, lenders tend to give the best rates only to people with steady jobs and pristine credit, in
many cases leaving first time homebuyers at a disadvantage. However, the lending environment continues to adapt and further propel the strength of the market.
Much of the cash buying in South Florida is from foreigners who view condominiums as safe investments. In the past year, large funds have entered the region, buying single-family homes and renting them out for a year or longer.
While it is still cheaper to buy a home than to rent in Miami-Dade and Broward counties, despite the double whammy of sharply rising home prices and mortgage rates, the math advantage of buying is shrinking according to a new housing affordability study by RealtyTrac. However, as lenders continue to loosen to accommodate new homebuyers and as inventory rises, it is expected that sellers will seek to maximize value and not be the victims of holding out for too long and allow for financed deals at higher prices to win out the bids.
If you are a buyer in need of financing, it is important that you engage your lender before starting your search so that once you have a property you want to pursue; you are able to do so with a comprehensive pre-approval. Many lenders will issue a pre-approval based upon limited criteria.
The responsible Buyer will seek to have their lender conduct a complete review of their creditworthiness so that the time frame for securing a commitment for financing is shortened
APR-MAY 2014
Following the collapse of the United States real estate market and the easylending era precedent to the 2007-09 recession, cash rich investors swept in to capitalize on low prices and a complicated lending environment that enhanced the “Cash is King” concept. The depressed South Florida real estate market coupled with the handicapped lending environment created a tremendous opportunity for investors.
Early investments in the distressed markets have realized double digit returns as the residential real estate market rebounded. On the flip side, the lending environment has redefined itself resulting in a more calculated and sophisticated underwriting process and historically low interest rates. The result of the more restrictive lending criteria coupled with low inventory, has kept the spotlight on Cash Buyers, eliminating the risks associated with a mortgage contingency.
With one of the nation's highest foreclosure rates, South Florida had a large supply of bankowned properties. Lenders were not interested in waiting for traditional buyers to qualify for mortgages, preferring instead to sell to investors paying cash. This realization has virtually shut out entry-level homebuyers.
Moreover, traditional sales also deterred the buyers who required financing. The cash buyers were able to secure better pricing, due to the fact that sellers were more inclined to accept an all cash offer versus a contract at a higher purchase price