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Cash Buyers Are ‘Mopping Up Inventory’

Thirty-four percent of home sales in January were paid for with cash, according to Campbell Surveys and Inside Mortgage Finance. And housing experts say the growing number of cash buyers on the market — who are often investors — can be a good thing in removing some of the overhang with foreclosures.

“I think a lot of people are throwing in the towel and deciding they would rather invest in real estate than have their money in a deposit account in the bank,” Tom Popik, research director at Campbell Surveys, said about the increase in cash buyers in the market.

The advantage of coming with cash to a real estate transaction is that cash buyers don’t have to worry about qualifying for the more stringent underwriting standards by lenders that have kept so many other buyers out of the market recently. They also have less concern about appraisals derailing a deal, another common problem plaguing many real estate markets.

That means it can be a challenge for financed buyers going up against cash buyers on the same house. A lender “might turn down a higher purchase price made by someone they feel has a questionable ability to get the mortgage,” says Bob Davis, executive vice president of the American Bankers Association.

Because of that, some housing experts have criticized the upswing in cash investors as pushing home prices down even more, since banks may be more willing to take an offer for a foreclosure for a little less from a cash buyer if it means they can get it off their books quicker.

But Richard Green, a professor at the University of Southern California’s Lusk Center for Real Estate, says it’s probably worth any potential trade-off.

“These cash buyers are mopping up inventory, and that’s probably the most important thing that can happen right now,” Green told Realty Times. “You’re not going to see a recovery in prices until inventories return to more normal levels.”

Source: “Cash Buyers Squeezing Out Traditional Home Seekers,” Realty Times (Feb. 27, 2012)

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