A recent report by the National Association of Realtors for the first quarter of 2014 shows one-third of all real estate sales in Minnesota are for cash. Nationally, about 43% of all sales in the U.S. were cash transactions. During the Great Recession, the percentage of cash buyers increased significantly from mostly investors who purchased foreclosed homes at a discount. However, as the real estate market has improved over the past few years the percentage of investor sales has declined significantly. Today’s cash buyers include traditional buyers (i.e. a person who buys and lives in a house) versus the real estate investor. Although banks have loosened some credit approvals for buyers; financing continues to be challenging for those buyers with less than perfect credit scores and low downpayments.
More Minnesota home buyers are paying cash
- Article by: Jim Buchta
- Star Tribune
- May 8, 2014 – 9:58 PM
More Minnesotans are paying cash for homes despite a significant decline in sales to investors.
One-third of all sales across the state during the first three months of this year were cash deals, according to a Realtors confidence index report from the National Association of Realtors. That’s comparable to the national average, but a significant increase from two years ago when such deals represented just 19 percent of sales in Minnesota.
“I’m surprised,” said Chris Galler, CEO of the Minnesota Association of Realtors. “What agents are telling is just the opposite, they’re saying those cash deals are not as prevalent as they were.”
His theory is that many buyers are paying cash to give themselves a competitive advantage in a market where inventory is low and multiple offers are common. Many sellers favor the certainty of a cash buyer over one who needs a mortgage. Sometimes cash buyers are even offered a discount.
During the worst of the recession, cash sales increased in line with sales to well-funded investors who prowled the market snapping up heavily discounted foreclosures. With the housing recovery underway, prices on the rise and fewer foreclosures flowing into the market, those investors are going away. During March, lender-owned sales fell nearly 40 percent in the Twin Cities, according to the Minneapolis Area Association of Realtors.
“These findings beg the question as to why we’re seeing higher shares of cash purchases,” said Lawrence Yun, chief economist for the national Realtors group.
Yun speculated that more buyers are paying cash because they have no other option. Access to credit has been tight since the downturn, and that’s forcing some buyers to tap into their savings instead. Low appraisals are still a problem in some areas, making it difficult for many buyers to get financing.
In Florida, where foreclosure rates remain exceptionally high and the economy hasn’t recovered as quickly, more than half of all sales during the first quarter were cash. In Nevada, Arizona and West Virginia, cash buyers accounted for nearly 40 percent of transactions.
Greg Sax, vice president at 10K Research and Marketing in Minneapolis, said local data suggest that cash deals happen in about one of every five sales, and that the methodology of the latest report might have something to do with the unexpected increase.
“The responses and data are not adjusted for seasonality effects, so that percentage may appear higher during colder months when fewer people are buying,” Sax said.