Kings get the royal treatment
In the fairy tales, kings are so revered, they get special treatment.
In our story, kings are cash buyers, and banks give them special treatment. Cash buyers can get away with paying less for most homes that are bank-owned or require bank approval, like a short sale. Banks will take a cash offer, even if it is 5%, 10%, even 20% below the FHA offers. Banks like the quick close, and not having to worry about an appraiser forcing them to spend money on repairs. A quick primer - appraisals can come back to the lender with "subject to's", meaning the seller must make the home habitable or safe prior to the buyer getting a loan. Subject to's can include replacing fixtures, appliances, repairing roofs and heaters, and other costly repairs.
More kings every month
Cash buyers are increasing each month, from 16% of sales to 25% of sales in the last seven months. People with $200K cash are not living in those houses, so it looks like the investors are moving in. See table below.
September 2008: 16% of total sales
Jan 09: 20% of total sales, 28% of sales under $250k
Feb 09: 22% of total sales, 32% of sales under $250k
Mar 09: 23% of total sales, 34% of sales under $250k
April 09: 25% of total sales, 35% of sales under $250k
Dueling with kings
This high demand from investors and first time buyers, brought our months supply to 1.6 months for homes under $400,000. Interestingly, the months supply is 1.6 for homes to $150K, for homes $151K - $300K. So it appears we have reached a maximum demand for homes at the 1.6 month range. If more cash buyers come in, this will of course change. Any increase in interest rates that takes out first time buyers, could be absorbed by the cash buyers.
Royal prices
List prices are rising for homes under $400,000. The cheaper the home, the more the prices are rising. . For example, the under-1000 sq ft homes listed and sold in the $150K range in March. However in April, the list and sold prices increaed to around $170K. At the same time, buyers are not overpaying. While the average sale price is $171K, the average list price is $235K due to overpriced sellers. In sum, the market is moving up in a rational manner, and overpriced sellers won't sell their homes.
Finding your own kingdoms
It doesn't seem fair to first time buyers relying on low-downpayment FHA or VA financing, but that is reality today. If you are an entry level buyer and need financing, you can increase your chances of getting the bank to consider your offer, if you look where cash buyers are not going. Cash buyers are getting daily email updates from their realtors, and running down to the newest listings under $250K. So if you are an FHA or VA buyer, don't copy their strategy! Go where they are not, specifically new homes, homes over $300K, attached homes (with sufficient owner occupancy to get a loan), or bank owned homes with long days on market.
Take a number, please
And now, some data on various financing types on April closings. Cash buyers are concentrated on the cheapest homes, but some are buying million dollar vacation homes downtown and along the beach. VA buyers increase at the $300K-plus prices. FHA buyers concentrate where affordability is: $200-$300K. They cannot afford the higher mortgage payments, so they drop out as prices rise over $300K. From this we see if interest rates rise, and we lose the marginal buyers (FHA and VA), we lose half our buyers.
Detached homes to $301-500K $201-300K Detached homes, to $200K
conventional 44% 30% 27%
cash 10% 16% 45%
FHA 27% 34% 23%
VA 16% 16% 3%
Are cash buyers only looking at detached homes? No, but they certainly prefer detached homes.
Attached homes $301K - 500K $201k - $300K Attached homes, to $200K
conventional 55% 39% 27%
cash 21% 23% 40%
FHA 19% 27% 24%
VA 4% 9% 7%
Schahrzad Berkland
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