Never mind the rising price of homes. Buyers are coming with fistfuls of cash.
In fact, homebuyers in South Florida now pay cash more often than they get a mortgage.
During the first quarter, 68 percent of Broward County homebuyers paid cash, up from 47 percent in the first quarter of 2013, according to a report Thursday from RealtyTrac Inc. And that number was higher than the year before, when cash accounted for 42 percent of sales in Broward.
No one expected this. Analysts predicted that cash deals would fall as prices rose. So what happened?
RealtyTrac says a dearth of properties for sale, tighter lending standards and an uptick in interest rates still favor cash buyers.
The influx of cash also makes it difficult for first-time and “move up” buyers to compete for homes, said Daren Blomquist, a vice president for RealtyTrac, a foreclosure listing firm in Irvine, Calif.
“It’s not a sustainable recovery to have such a heavy reliance on cash purchases,” he said. “I don’t think it’s healthy over the long term.”
Investors started buying foreclosed homes on the cheap after South Florida prices hit bottom in early 2012. That fueled a strong bounce-back, with monthly median prices shooting up by more than 20 percent year to year. Homes typically appreciate at about 4 percent annually.
The market was so overheated in 2013 that some real estate agents and analysts worried about another housing bubble. The increases have since leveled off, and industry followers expect more modest price growth for the rest of 2014.
Still, investor Lex Levinrad said there’s “an absolute feeding frenzy” among cash buyers looking for deals. He heads the Distressed Real Estate Institute, a club for real estate investors, and buys 15 to 20 homes a month in Palm Beach, Broward and other nearby counties.
Cash buyers are coming from Europe, Brazil and Russia, he said. A hedge fund contacted him recently about buying 350 houses in Palm Beach and Broward counties over the next 18 months.
“If they have cash to invest, people feel like they will miss the boat if they don’t buy now,” Levinrad said.
In Palm Beach County, cash sales accounted for 69 percent of sales in the first quarter, up from 42 percent a year earlier, RealtyTrac said. Statewide, 64 percent of sales were all cash, compared with 35 percent last year.
Nationally, 43 percent of sales in the first quarter came from cash buyers, the highest level since RealtyTrac started following the trend in the first quarter of 2011.
The RealtyTrac figures include sales at foreclosure auctions as well as transactions that were not advertised on multiple listing services.
South Florida real estate agent Amanda Wilson said mortgage underwriting has become so stringent and unpredictable that some buyers don’t know until closing day whether the deal will happen. Sellers prefer cash because it provides more certainty, she said.
“When we get a cash offer, it’s like ‘Hooray!’” Wilson said. “I would like to see more first-time homebuyers because I think that’s what the market is missing, but it’s very difficult.”
Suzanne Smith and her husband, Paul, recently paid $91,500 cash for a two-bedroom condominium in Boca Raton. She said the seller knocked nearly $10,000 off the price because no financing was needed.
When they started looking at places, Smith said she had no idea of the power in paying cash.
“I wish we would have gotten into the market sooner,” she said.