Cash is King as New Wave of Home Buyers Shuns Loans and Pays Small Bucks for Bargains

It's a new beginning in America's home-buying market. More and more buyers are saying no to expensive and convoluted bank loans and paying cash instead for bargain properties.

The Wall Street Journal reports scores of bargain-basement deals being closed by cash-bidding buyers who feel the bottom has been reached in the market.

Where are they getting the cash from? They are selling other investments like paintings, cars and jewelry.

For example, In Atlanta, 62-year-old piano teacher Virginia Hall-Busch paid cash for a 93-year-old three-bedroom, one-bath bungalow in scenic Stone Mountain, GA.

The property initially listed for $159,000, then dropped to $129,000 and then to $79,900. The piano teacher didn't think her bid of $52,500 would be taken seriously. It was. She is the new owner.

In Miami Beach, Richard Stoker, a 73-year-old retired sales executive, paid cash for two condominiums and soon plans to close on a third. He is paying $1.8 million, $1.2 million and $1 million for properties that were initially listed for double those amounts.

The Stokers have a home in Potomac, Md., but spend most of the year in Florida. Stoker doesn't plan to rent out any of his new properties. He tells the WSJ he and his wife will live in one with two dogs, his son might live in another and the third will house an older dog and guests.

Cash buyers represented more than half of all transactions in the Miami-Fort Lauderdale area last year, according to an analysis from real-estate portal Zillow.com.

In the fourth quarter of 2006, they represented just 13% of deals. Meanwhile, downtown Miami prices rose 15% in 2010 from a year earlier, according to the Miami Downtown Development Authority.

The percentage of buyers in Phoenix paying cash hit 42% in 2010--more than triple the rate in 2008, according to Raymond James's equity research division.

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 Federal Reserve reports that Americans increased their use of credit cards in December 2010 for the first time since August 2008.

Henry Schlangen
"Some of the cash purchases reflect a tight lending environment, where even people with good credit and ample down payments are sometimes turned away for conventional borrowing," reports the WSJ.

"The rates are great but the underwriting is brutal," said Henry Schlangen, an agent with real-estate firm Pacific Union International who buys and sells for clients, mainly in Napa Valley, CA.

Schlangen tells the WSJ, "They (lenders) hang these people upside down and shake them till they see what falls out of their pockets. So people are buying with cash and maybe they'll 'Refi' later."

Schlangen, who deals in higher-end properties such as vineyard estates, estimated that 95% of his deals last year were all-cash, up from about half in previous years.

"The deals that are consummating, these are buyers who feel they got a great deal," he said. He notes the number of buyers from China are increasing.

Mohammed Siddiq
Cash buyers can often command 5% to 10% more off the asking price than a potential buyer using a mortgage, Mohammed Siddiq, a real-estate professional in Fort Lauderdale, FL, tells the WSJ.

Sellers prefer cash deals since they close more quickly and avoid risks such as a buyer's job loss or a bank's changing its mind, he says.

Nationally, it isn't clear whether prices have bottomed.

The Case-Shiller index of housing prices in 20 cities showed a steep decline in prices until 2009, when they appeared to bottom and began to trend upward.

But in the second half of last year, prices began falling again. A Zillow index, meanwhile, never noted the uptick, reports the WSJ.

Source: http://www.realestatechannel.com/us-markets/residential-real-estate-1/raymond-james-zillowcom-national-association-of-realtors-henry-schlangen-pacific-union-international-mohammed-siddiq-stone-mountain-ga-miami-beach-skyline-3915.php

Posted by Alex Finkelstein