By NICK TIMIRAOS / Wall Street Journal
Falling home prices are spurring an increase in all-cash home sales in markets that have been hardest hit by the foreclosure crisis, an indication that bargain hunters have descended on the markets looking for deals.
Homes financed with cash comprised one-third of sales in Phoenix last month, up from 19% one year ago, according to a report by Raymond James & Associates Inc. In Sacramento, Calif., all-cash sales accounted for 24% of total home sales last month, up from 8% in January 2008 and 3% in January 2007, according to the Sacramento Association of Realtors. Sacramento and Phoenix have each seen home prices fall by one-third in the past year.
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Cash sales are up even more in many Florida markets. In Miami, cash offers accounted for 30% of sales last month, according to a report by Thomas Lawler, a housing economist based in Leesburg, Va. That share more than doubled in Gulf Coast communities such as Punta Gorda and Englewood, Fla., where cash financing accounted for 65% and 60% of sales, respectively.
"It's sort of like, 'Good Lord, prices have fallen so low that even people who are willing to pay all cash are buying,'" says Mr. Lawler, adding that cash financing has increased sharply in every major market "where distressed sales have soared and prices have plunged," he says.
Cash sales are typically higher in Florida than in other markets, in part because the state attracts lots of foreign buyers and retirees who are more likely to plunk down their savings without taking out a mortgage. But a number of cash buyers these days, in Florida and elsewhere, are also investors scooping up distressed properties and affluent families seeking relatively inexpensive vacation homes. "Cash investors have come right out and said, 'We can't make a return on our money in stocks or bonds,'" says Heather Barr, a Realtor based in Gilbert, Ariz., a Phoenix suburb. "They think Phoenix has had such sharp price declines that we've got to be near the bottom and real estate will be a safe place to put their money."
In some cases, cash buyers are finding that they can get a deeper discount by making an all-cash offer. In markets with a glut of foreclosed homes, lenders are becoming more aggressive to sell "simply because there aren't enough first-time home buyers around to sop up the excess supply," Mr. Lawler says.
Brett Barry, a Phoenix Realtor, is selling a bank-owned home in Cave Creek, Ariz., to an Indianapolis couple that is retiring and buying a second home. The property will sell for about $190,000, down from an earlier listing price of $209,000.
"That price was a good deal, and the bank didn't even counter it," says Mr. Barry.
A separate bank-owned home in the same development sold for $133,000 to a cash investor, beating out a $179,000 offer from a first-time home buyer with financing from the Federal Housing Administration. "The bank just didn't want to take the chance with financing," Mr. Barry says. "The lenders I work with will take a substantially lower cash offer as long as they see proof of liquid funds."
In South Florida's condo market, "the all-cash buyer is basically the only one doing deals today because the financing just doesn't exist," said broker Peter Zalewski of Condo Vultures Realty LLC in Bal Harbour. "It's virtually impossible to get a loan."
A glut of condos that eroded home prices has triggered tighter lending standards, including 50% down payments even for individuals with spotless credit. Meanwhile, beginning in April, government-backed mortgage agency Freddie Mac will tack on a delivery fee to mortgages backed by condo units nationwide if the down payment is less than 25%. Fannie Mae is doing the same, a move that follows last month's tightened condo-lending guidelines, with requirements including a majority of units presold and reserve amounts. In Florida, Fannie must now review each new project for stability before it will guarantee financing.
—Dawn Wotapka contributed to this article.
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