Joe Davidoff, a 29-year old business development manager, and his wife Anna have been house-hunting in Broward County, Florida since April. So far, the couple has made eight bids, and lost out on five.
At least four of the five bids they lost were to all-cash bidders.
Davidoff and his wife, like many other first-time homebuyers across the country, are being squeezed out by all-cash deals.
All-cash purchases accounted for 65% of all residential sales in Florida in August, according to RealtyTrac, and 45% of all U.S. residential sales. The share of institutional investors buying 10 properties or more in the last 12 months increased to 10% of all sales.
Davidoff and his wife who have rented in Broward County since 2009, have been looking for homes in Coral Springs, Tamarac, Deerfield Beach, Weston, and Plantation, in Florida’s Broward County. After a few disappointments, they expanded their search to cities in Palm Beach County as well.
They are looking to spend up to $US165,000 on a townhouse or $US185,00 on a home. Davidoff doesn’t know for sure if the all-cash offers are coming from homebuyers or investors, but the chatter is that its coming from investors. Specifically, he’s heard that many of the all-cash offer are from firms in New York, Brazil, and Canada, he told Business Insider in a telephone interview.
Davidoff and his wife both went to the University of South Florida, and Davidoff graduated with a Masters degree from Florida International University in 2012. “We both have student loans that limit the amount we can go with,” he said.
Florida had a median sales price of $US132,000 in August, up 15% from a year ago, according to RealtyTrac. The state also had 646,827 annualized residential sales in August, up 22% from a year ago.
The couple has been offering $US5,000 – $US10,000 over the asking price, but they’ve had a hard time getting contracts accepted. Often, sellers would rather take a lower cash offer to avoid taking on the risk of tighter lending later, he said.
The impact on the housing recovery
Economists worry that all-cash sales are driving home sales and distorting home prices and this is ultimately unsustainable.
“I think the high percentage of all-cash sales means that many first-time home buyers and move-up home buyers are not participating in this housing market recovery,” Daren Blomquist, vice president at RealtyTrac told Business Insider.
“Without those two buyer segments participating in greater measure the housing recovery will not be sustainable for the longer term. If the all-cash sales continue at the high levels we’ve been seeing the past few months, it could mean a major paradigm shift for the U.S. housing market toward more of a renter nation and less of a home ownership society.”
Ellen Haberle, real estate economist at Redfin told Business Insider that this activity has prompted homebuyer fatigue. But that this isn’t necessarily bad for the housing recovery:
“For the housing recovery as a whole, the all-cash buyers have played a key role in giving the housing recovery a kick start and driving up prices. For many home owners who were underwater on their mortgage, this swift rise in prices has been welcome news — bringing their mortgage right side up and allowing them to sell their home without a loss. As more homeowners that come out from underwater on their mortgages, more homes will be listed for sale, which will bring the housing market into greater balance. This is not a bad thing for the housing recovery — greater balance means more sustainable and longer-term growth.”
Part of the reason Davidoff is trying so hard to pin a house down now is because he’s wary of the run up in mortgage rates. “We don’t really want to get stuck into interest rates starting to increase next year, home prices starting to increase next year. It could price you out of things that you could attempt to get now.”
Davidoff and his wife began this process thinking it was going to be “fairly easy” because his mother-in-law is his realtor. But he remembers a time when a house would go on the market at eight. At noon, when he would show up to see the house, his car was already the sixth or seventh in line just to see it.
“Things have slowed down a bit since then,” he said. “But we’re still dealing with first day offers, people putting offers in and not even going to see it and you’re still dealing with some realtors that will keep a property on the market for just a cash offer.”
After losing out on a bid two weeks ago where the couple offered $US5,100 above the asking price, Davidoff said his wife was ready to give up. But he is a bit more optimistic.
“We’re in a good situation where we’re currently renting, our hand isn’t forced like some other people, so we can continue looking. The couple has three more offers out there and expect to hear back from one today.
But Davidoff knows that “cash is definitely winning down here in Florida.”