Cash Buying

Freddie Mac’s latest report showed housing charted lower than they originally thought for Q2, and this is making buyers pursue another route to buy a home. 

In the report the tight supply of homes was highlighted, and how cash deals are more attractive to the sellers. Back in the day, people would basically buy homes with a loan they received. This is still a popular route, but it’s getting increasingly difficult. Now sellers are preferring cash deals, which puts a lot of buyers out of the market. 

Some people aren’t fond of the idea of throwing their cash into real estate because it is illiquid and has extremely high transaction costs. But today, if a buyer walks up to a house they like with cash, they gain the upper hand quickly over their competitors. This way, the seller doesn’t have to worry about the buyer getting a mortgage, or if the appraisal will come in lower than they expected. Having one more cash sale means one less mortgage origination. 

Since Freddie Mac’s prime mortgage interest rates expected to stay under 4% for the rest of 2017, home sales should hit 6.2 million units for the year, which is a whopping 3% jump from 2016. Freddie would say the number is still stifled due to inventory constraints.  

For the year, home price appreciation is expected to be 6.3% due to high demand and incredibly low  supply. 

For the month of June, cash sales were 18% of all home sales. The historical average is 10%, but it was still less than the all-time high of 35%. 

We will have to wait and see what today’s market that sucks down cash has on the mortgage market. If the cash sales can hover around 20% for a while, that would equate to $172 billion less in mortgage originations than if the cash were steady at it’s historical norm.

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