Market Insights: Cash purchases surge
This column has been going for a year now. Thank you! I have grown so much because of your questions. I hear from loyal readers regularly, at least once a week, with questions. Your questions push me to search for answers. What a great relationship. Our interactions cause me to analyze the market more closely. In the process of answering your questions, we both benefit. I love it.
This week and next week’s columns come as a result of a person who asked, “How are the changes in interest rates impacting the market?” I was not about to offer a superficial answer, so the first thing I looked at is what percent of people in 2011 are paying cash (do not obtain a loan to purchase). The answer is shocking.
Over the past five years, the average number of my clients who pay cash is 33 percent. Yet in 2011 year-to-date, 66 percent have paid cash. I started to ask my colleagues, other real estate brokers in Summit County, if they are seeing a similar trend. The answer: a resounding “yes.” With that answer, I knew I had to dig deeper.
The best source I have for uncovering trends is the extremely well-known and highly-trusted team at Title Company of the Rockies (TCOR) in Summit Country. I asked Chris Belby, the person who heads up the team, to analyze cash purchases year-to-date 2010 as compared to year-to-date 2011. I hope you are sitting down:
2010 – 63 percent financed with loans and 27 percent paid cash
2011 – 55 percent financed with loans and 45 percent paid cash
Based on this homework, I can say with confidence that in 2011, cash purchases have surged. Figuring out why has been fun. I have talked to dozens of people in the real estate industry, including many cash buyers, searching for answers.
Here are the top three conclusions:
1. The interest rates being paid on deposits are so low there is little incentive to keep money in the bank.
2. Many would rather have their cash in real estate than in a bank. It feels that weekly, we read about another bank that has failed.
3. The cash buyers have been sitting back waiting for the market to reach a bottom. Contracts that are not contingent on finance obtain the lowest prices when being negotiated.
Shannon Dahman, a 15-year, veteran mortgage broker in Breckenridge with America’s Mortgage LLC, summed it up when she told me, “Those with the ability to either borrow or pay cash are the most astute buyers. This year, they are coming into the market in force because they feel the prices they are paying for property, using cash, is a superb use of their money.”
To make this concept concrete, have a look at these photos of a home on Gold Flake Terrace in Breckenridge that sold for $2,000,000. The buyers used the leverage of offering cash and a closing within two weeks to save themselves several hundred thousand dollars. When considering this offer, the seller said to me, “A cash buyer is better than a dozen buyers who need a loan.”
If you are a buyer without cash; however, you are 110 percent positive you will receive a loan, I encourage you to strongly consider the strategy of presenting the seller with an offer that is not contingent on financing. The old adage ‘cash talks’ is true.
Daniel Webster Johnson is a broker associate at Resort Brokers Real Estate in Breckenridge. He can be reached at (970) 393-3300 and Daniel@YourMountainBroker.com
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