DES MOINES, Iowa (AP) - After paying off her home 15 years ago, Cyndy Berry doesn’t want to go back to writing a mortgage check each month.
Berry, 74, is selling her three-bedroom ranch in the small northern Iowa town of Hudson and plans to move to a townhouse in the Des Moines suburbs to live closer to her son and sister.
She plans to pay cash, like a growing number of homebuyers around the country.
“It puts me in a very good spot,” she told The Des Moines Register (https://dmreg.co/1qXZq5T), noting that a cash offer makes her bid more attractive to sellers. “People know the money is going to come instantly when the papers are signed.”
All-cash home sales have more than doubled in the past year, increasing from 19.1 percent of all home sales nationwide in the first quarter of 2013 to 42.7 percent in the first quarter this year, according to data released this month by RealtyTrac, a real estate research firm.
In Iowa, all-cash home sales grew from 23.2 percent to 36.5 percent during the same time period, while Des Moines-area cash sales climbed from 15.6 percent to 29.3 percent, RealtyTrac said.
The surge in cash sales puzzles some experts because it comes as investors, who often pay cash for houses to flip or rent, buy fewer homes. Economists attribute the trend in part to tighter mortgage regulations enacted after the recession and a shortage of homes for sale. That combination has created a competitive market in which offering cash can help win a bidding war.
“Buyers are finding creative ways to come up with the cash,” said RealtyTrac Vice President Daren Blomquist. “We hear a lot about folks using their IRAs to buy properties with cash because they know cash will get them to the front of the line.”
While cash sales indicate confidence in the market, they also present a challenge for entry-level homebuyers.
“It’s a tough market to be a buyer who is relying on financing,” Blomquist said. “It’s harder to qualify, and you are competing against a lot of cash buyers.”
According to RealtyTrac, institutional investors, which are defined as those who buy 10 or more properties in a year, accounted for 5.6 percent of home sales nationwide in the first quarter of 2014, down from 7 percent in the same quarter of 2013, according to RealtyTrac.
Replacing the house-flippers and big investors are retirees and empty-nesters who have seen their investment portfolios and home values rebound since the recession, said Anne Vaske, a Waukeereal estate agent with Iowa Realty who is currently brokering three cash deals.
“I think it shows (retirees) are feeling better about the economy,” she said. “Otherwise, that group of people wouldn’t be pulling the trigger.”
The National Association of Realtors, which uses different data than RealtyTrac, found that all-cash sales rose from 29 percent in 2012 to 31 percent in 2013 and 33 percent in the first quarter of 2014.
At the same time, distressed home sales, which are popular among investors who pay cash, were down slightly.
Lawrence Yun, chief economist for the association, called the findings counterintuitive.
“The restrictive mortgage lending standards are a factor,” he said in a news release, “but the higher levels of cash sales may also come from the aging of the baby boom generation, with more trade-down and retirement buyers paying cash with decades of equity accumulation.”
Cash sales in the first quarter were highest in Sun Belt states and major metros. Florida saw 64 percent of home sales made with cash, and it was home to the top nine cities nationwide for cash sales, according to RealtyTrac.
Not all agree that cash home sales are rising. CoreLogic, another real estate research firm, reported last week that cash sales accounted for 40.2 percent of all sales in February, down from 43.7 percent a year earlier. Cash sales accounted for 34 percent of home sales in Iowa, according to CoreLogic, but figures for previous years were not available.
Mark Vitner, a senior economist with Wells Fargo, said he thinks cash sales are beginning to fall as investors run out of cheap foreclosures to buy and turn for a profit.
“I suspect this is a temporary phenomenon. I suspect cash purchases are declining,” he said. “What we’re seeing in the housing market is investors leaving faster than traditional buyers are coming back.”
Blomquist, with RealtyTrac, said economists want to see cash sales at about 20 percent to 30 percent of overall sales.
“The high percentage of cash sales is a good sign in the short term, but for a sustainable, healthy market, we would expect and hope that cash sales would subside as the inventory increases and banks loosen up on lending standards,” he said.
Merle and Joyce Stutzman of Newton are building a townhome in Urbandale to downsize and be closer to family.
The retired couple have paid off their current home and want to buy with cash to save on interest.
“I don’t want to get into mortgage payments again,” said Merle Stutzman, 68.
As Berry waits for her home in Hudson to sell, she has seen her list of potential homes near Des Moines whittled away. She hopes to close on the sale of her house in the coming weeks so she has the cash to put in an offer on the townhouse she wants.
“I have to act fairly quickly,” Berry said. “It’s a big domino game.”
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Information from: The Des Moines Register, https://www.desmoinesregister.com
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