Recent housing data from national and local sources are uncovering an interesting trend in the residential real estate market. In 2010, 28% of homes purchased were paid with cash according to a recent Wall Street Journal article,
“Nationally, 28% of sales were all-cash transactions last year, according to the National Association of Realtors. The rate was 14% in October 2008, when the trade group began tracking the measure. The jump in real-estate purchases made with cash is another sign of the revival of animal spirits in the U.S. economy.”
That trend is mimicked almost perfectly by the Twin Cities market. For the month of January, 27% of homes were bought with cash. Although banks, sellers, and agents are pleased with any boost in this soft market, these purchases are creating a public policy problem according to some. Because cash sales are driven primarily by investors looking to earn income on rental units, would be home buyers are getting pushed out of the market. Offers of “cash in hand” are especially desirable currently, in large part due to banks desire for cash security, a reactionary solution to the over leveraging that created the current market conditions. MPR and Aaron Dickinson, a local real estate agent who is the author of Twin Cities Real Estate are breaking this story in the Twin Cities,
“Competition with cash-laden investors makes it difficult to get foreclosed properties into the hands of homeowners,” Thomas Streitz, director of housing policy and development for Minneapolis, told a U.S. House subcommittee almost exactly a year ago. The city was trying to prevent the turnover of single family homes to rentals but sellers were taking lower cash offers over the higher offers of developers working with the city’s Neighborhood Stabilization Program. “A homeowner with a FHA approved mortgage with a 30 day approval time does not compete with cash-in-hand private investors,” he wrote.”
It will be very interesting to see how this development effects the market, nationally and locally, as well as how the tensions between investors and some communities resolve themselves. However, in the end, it seems like cities will continue to encourage the selling of houses, especially those foreclosed on, which were bought with cash nearly 2 out of 3 times (Bank held properties valued at <$100,000). In the end, Dickinson reminds readers that,
“All things equal, if a city has to choose between a vacant foreclosed home and an occupied rental, usually the rental is a better (choice)…”
Let us known what your thoughts concerning this intriguing trend.