Just the other day I ran the terms-of-sale statistics for 2013. Since I work with buyers as well as sellers I am aware of the difficulty that buyers in the lower end of the market are having when they are trying to purchase a home using a mortgage. Homebuyers eager to purchase before home prices and mortgage rates rise are finding few homes for sale, and the ones on the market in the lower end are getting multiple bids and most end up selling to all cash buyers…most likely, investors.
- So far in 2013, 87% of all sales under $100k are to ALL CASH BUYERS
- $100k-$200k…58% are cash deals
- $200-$300k…50% cash
- $300-$400k…49% cash
- $400-$500k…52%cash
- $500k-$750k…56% cash
- $750k-$1m…$63% cash
- $1m-$2m…68% cash
- $2m-$5m…76% cash
- $5m+…78% cash
There is a massive search for yield and perceived safety going on. The Feds Zero Interest Rate Program…along with the recent skittishness caused by the cash-grab in Cypress, coupled with the thin air at the high altitude of todays stock market has made real estate the investment du jour!
Everyone (and when I say everyone…I mean the media, NAR, most real estate salespeople, etc) are on the back of the bandwagon screaming that “HOUSING IS BACK…BUY NOW”!
But…silly me, I always like to put things in perspective. The historic Palm Beach County (MLS reported) average for ALL CASH SALES from 1998 through December 2010 was 23%. In 2011 and 2012 it was 65%…YTD 2013 it is running at 66%. Does this look like a sustainable market driver to you?
Well it doesn’t to me! Investor (and owner occupant cash) will dry up at some point…to be replaced by…? It will dry up when the Cap rates no longer are favorable…It will dry up when interest rates rise as the cash will go back to fixed income investments…AND, if interest rates DO rise enough to entice the cash OUT of the real estate market, it will be a dagger in the heart of financing buyers at the same time.
It will dry up when all of the recently formed hedge funds/investment groups realize that managing non-contiguous, geographically dispersed rental property is not the rosy picture that was painted for them. Cash-flows won’t come close to what was expected and properties will be dumped ‘en mass’ back on the market (it’ll take a few years for that fiscal reality to set in). Much of the price gains in the last year are driven by investors competing for the small lot of inventory regardless of what underlying rental yields will produce.
The recent jobs report from last week was absolutely dismal…and that’s just the number that the BLS is putting out. Real unemployment is well over 12% and getting worse if you count in the “out-of-the-workforce” crowd. With increasing unemployment / underemployment and stagnant wages…where are the next wave of buyers coming from after the all cash buyer crowd is back to normal levels?
What does this mean to you? Well…this: If you are thinking of selling, it may be the best time you’ll see for a while. If you are thinking of buying…you’d better have a good, fiscally sound, reason to be doing that.
I love to talk real estate…so call (561.602.1258) or email (blog@thejacksonteam.com) me any time.
Thanks for reading…Steve Jackson