Cash = muscle in Twin Cities real estate
Cash moves houses and that's generally good in markets where houses for sale are stacking up. But who's buying and why? Will the cash dealing bring stability or more turmoil to Twin Cities neighborhoods?
Those are questions that need to be answered. We don't have any answers but we can say that cash is driving sales in bank-owned housing and we should be talking more about it.
Realtor Aaron Dickinson, a source in MPR's Public Insight Network, has pulled together detailed research on cash transactions for his blog.
Earlier this week he calculated that cash deals made up nearly two-thirds of every bank-owned home priced under $100,000 and sold in the Twin Cities in the first half of 2010.
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He estimates that cash purchases made up about 17 percent of all Twin Cities home sales in the first half of 2010 -- a huge jump from the same time in 2006, before the housing / mortgage crisis, when it was about 4 percent.
Dickinson points out that banks love cash and that they're willing to do deals for people who don't need a mortgage. He figures most of the buyers are investors and makes an interesting observation:
Property flipping has come back in vogue -- though this time the increased home price on resale is due to the repairs the rehabbers made versus just time passing like it was in the boom years. We also have investors who are buying homes for rental properties since many homes for sale will easily cash flow even after extensive repairs.
So the basic facts, supported by data, are intriguing. We're seeing a wave of people who can put up cash, buy basic housing cheap, fix it up and resell it or rent it out.
The thing is, we don't know the implications of the change underway.
We asked back in January: Can the interests of investors with cash to spend co-exist with the policy goals of putting people in their first home and stabilizing neighborhoods? (At this point, we're going to retread stuff from our past posts on this matter, mostly because we thought we wrote it pretty well).
Here's why the cash craze might not be a good thing, or at least why we need to have a larger conversation about it.
"Investor competition is a main challenge in bringing foreclosed properties on the market to homeowners," Thomas Streitz, director of housing policy and development for Minneapolis, told a U.S. House subcommittee earlier this year.
The city, he wrote, is trying to prevent the turnover of single family homes to rentals but sellers are taking lower cash offers over the higher offers of developers working with the city's Neighborhood Stabilization Program.
"A homeowner with a FHA approved mortgage with a 30 day approval time does not compete with cash-in-hand private investors."
Similar concerns surfaced in the most recent National Association of Realtors Confidence reports. The reports include Realtor responses from surveys of market conditions.
"Buyers primarily paying cash due to inability to get mortgages," one Realtor commented in NAR's June report.
"Serious challenges in getting owner occupants into foreclosed properties due to issues with repairs and financing. The result is most foreclosures will sell low to cash investors many out of state who become slum lords," another Realtor said in the March Confidence Index.
Here's one more from March:
Competition for properties for first time home buyers has been extremely difficult due in part to the $8000 tax credit. Unfortunately for them, many new investors are also taking advantage of the low prices by moving money out of poorly performing investment accounts and buying properties cash.
Naturally, those investors are having much more success having their offers accepted.
Back to the present. So we have Dickinson's solid research and our hand-wringing about the policy implications.
Now tell us what you're seeing when it comes to cash sales and homes? Post below or drop us a line and share an insight.
BONUS: Read our past posts on cash deals and housing in the Twin Cities