Cash Still King In Real Estate
They say that "cash is king" in real estate, meaning that those with the cash rule the market.
Apparently 2014 is going to close out the year as proof positive that cash buyers are ruling at a greater rate these days.
We have analyzed home sales in the Tallahassee MLS for the past 12 years to identify the source of funds for homebuyers, and cash is being used at a greater rate today than at any time during our analysis period.
But what are the cash buyers buying?
Cash Is King In Real Estate
The real estate graph below looks at the five primary sources of funds for homebuyers for each of the past 12 years, and represented as a percentage of all closed home purchases.
People who paid cash are shown in blue, those that financed with a conventional loan are shown in red, buyers who financed with an FHA loan are shown in green, VA loans are shown in purple, then all other sources of funds are lumped together and are shown in teal.
While cash might be king, conventional loans are the most often used source of funds for buying a home in Tallahassee. This year, just under one half of all buyers paid for their homes with a conventional loan, but take a look at what is happening with cash buyers.
31% of all home purchases this year have been funded with cash, and this is the highest rate recorded over the past twelve years.
Cash purchases have been far more prevalent at the lowest price ranges than any where else. Thus far in 2014, 75% of the homes purchased for less than $75,000 have been paid with cash, versus only 17% of median priced homes ($125,000 to $150,000) have been paid for completely with cash.
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FHA Loans Will Be Used Again
When you look at the green line in the graph above, you see that the use of FHA loans has fallen from 38% of all transactions five years ago to merely 14% of the purchases in 2014.
I believe this is primarily due to two factors. First, the requirements for qualifying for FHA loans has been toughened greatly, and secondly, many people who would use an FHA loan have done a short sale in the past four years and are not yet capable of securing one of these loans. But time heals all wounds.
The standards are dropping for buyers to qualify for an FHA loan, and time is passing which will remove the time constraint for people who have in recent years had to sell their home through a short sale. Because of these reasons, I expect to see the declining trend of FHA loans reverse next year.
What's Being Purchased For Cash In Tallahassee?
The following table shows all home sales recorded in the Tallahassee MLS as cash purchases.
[table id=58 /]
I hope this report on cash purchases and real estate financing has given you a stronger insight into what is happening in the Tallahassee real estate market. If you would like to know more about how analysis will help you get a better deal when you sell or buy a home, just drop me a note and we can discuss your individual needs and goals.