The current real estate market is tough on buyers. That much we know. Locations from Salt Lake City, UT to Boise, ID and Tampa, FL are seeing an influx of new residents fleeing high tax states like New York and California. A lot of them are bringing cash with them, making it even tougher for local residents to buy the houses they want.
Cash buyers can definitely make for tough real estate market. In reality, a cash offer is not necessarily a better offer. But, as Salt Lake City’s CityHome Collective real estate brokerage explains, sellers have a perception of cash that is hard to overcome. They see cash offers and are quick to jump on them.
Cash Guarantees a Purchase
CityHome Collective says that cash guarantees a purchase in the eyes of the seller. A deal could still fall through, but most cash offers are completed with very few hiccups. Sellers find that attractive. Why? For a number of reasons.
At the top of the list is the relief that comes with knowing the house has finally sold. The other side of that coin is accepting a non-cash offer, making plans to move, and then finding the deal has fallen through because the buyer couldn’t get financing. Cash offers eliminate a lot of the anxiety that comes with selling.
Cash offers are especially appealing to sellers trying to buy new homes at the same time. It is already difficult to simultaneously sell one home and buy another but throw financing into the equation and there are a lot of works to gum up. A cash offer changes things by giving sellers leverage to obtain financing on a new home.
Driving Prices Higher
Cash buyers are a significant problem in central and coastal Florida these days. Why? Because they are driving prices higher. Buyers from northern states, flush with cash, are willing to pay premium prices on Florida homes. Oftentimes, they are more than willing to get into bidding wars that can drive up a home’s price by tens of thousands of dollars.
Even if the eventual sale price exceeds the amount of cash an out-of-state buyer has on hand, it’s okay because having a large cash deposit makes a larger mortgage more affordable. Buyers can afford to spend more because they have cash to offset increased borrowing needs.
Meanwhile, local residents working through traditional deals with down payments at 20% or less simply cannot compete. They cannot offer as much to win a bidding war. And should the seller even consider an offer, they cannot move as quickly as a cash buyer.
It Won’t Last Forever
Local home buyers can take solace in the fact that the current conditions will not last forever. If there is one thing we know about real estate, it’s that it is cyclical. Any real estate broker will tell you as much. One year the market heavily favors buyers; the next it favors sellers. That’s the way it goes. This current market is no exception to the rule.
Sales are already beginning to slow down thanks to limited inventory. They should continue slowing through the summer and into the fall. That is the normal seasonal cycle anyway. The only question is how fast prices will fall as we approach the end of the year.
It is entirely possible that what we are experiencing now is a post-coronavirus bubble fueled by interstate migration and a large number of buyers whose 2020 plans were thwarted. If that proves to be the case, the bubble will burst before the year is out. Stay tuned.