Cash is Still King

When we first heard the national statistics, that a third of all sales currently are cash deals, we had trouble believing it.  Then, when it transpired that that figure in Connecticut was 39%, it was even harder to swallow.  However, as the year goes on, and we look at each transaction closing, it's more apparent that those cash sales really have increased a great deal.  And the difference in those deals can be huge, when the mortgage contingency is removed from the equation.  Closings are faster, deals fall through less often, sellers and buyers feel more committed; however, there is the appraisal problem.

Many buyers feel--and they are often correct--that they will get a better price from the sellers if they offer cash, for all the reasons stated above.  The mortgage process, though, does provide the security of an appraisal, ensuring that the seller is not overpaying.  In fact, these days, with the market improving, the appraisal, as I've stated before, is more often low than high.

Without the need for an appraisal, the seller may want to check the appraisal on his or her own, and sometimes does.  The fact that a deal may be called cash does not mean that the buyer won't seek a mortgage.  It simply means that the buyer intends to close, and can close, with or without a mortgage in place.  So, if they do apply for a mortgage on a cash sale, and the appraisal comes in low, they sometimes try to get out.  Without the mortgage contingency, that can get messy.  If they didn't say that a mortgage was required for them to close, or be willing to close, and they got a better price for that risk, can they now assert the same claim as a buyer who had the contingency?  We're sometimes finding that out these days.

Housing and the Federal TARP money

People all want to refinance or take out a new mortgage at the bottom of the market. Well, I wasn't sure before, but, based on what I've learned about the government's stimulus program, the time to get a mortgage is NOW. It turns out that the TARP money being given to banks isn't free. In the same way that the first-time homebuyer's tax credit sounds as though you don't have to pay it back, the TARP money has been characterized as a bailout, leading us to think that the banks are being granted the funds. But we were wrong--they have to pay it back, with 5% interest for the first number of years, and 7% interest after that.

So, while I previously thought that interest rates would just keep being forced down until people bought real estate, I now think we're at--or even past--the rate bottom. If a bank has to use money that it's paying 5% for, how many loans can it make for less than that, or even for the same amount, without incurring losses? In our WP mortgage joint venture with Webster Bank, we've seen rates, which had been at 5% with no points for a 30-year fixed mortgage, start to creep up. That now makes sense to me, and it's a call to action.

As I've said before, what you pay as a mortgage rate will matter more on the margin than what you pay for the property, so, if you have the money to buy a new home, buy it now! By the time you realize that rates are heading up, they will be higher yet.

Barbara's CT Real Estate Blog

Welcome to the first posting on Barbara's Connecticut Real Estate Blog. So much is happening at warp speed in the national real estate market that it seemed like a good time to try this new medium for communicating with clients and friends. As the financial crisis deepens, I'm bringing you something new that you can read when you're up worrying in the middle of the night.

I have been in the real estate business, in one way or another, all of my life. My father started our compnay when I was a toddler, so I have 50 years of history. I've never seen anything like this before. Credit markets for commercial real estate are, whatever banks may say to the contrary, frozen. Residential buyers are sitting on the fence, waiting to see what's going to happen. Realtors are sidelined.

Despite the bad news on every front, I'd like this to have a positive aspect to it. Greater New Haven is a wonderful place to live and work. We have so many colleges and universities that our region has a plethora of cultural offerings. Our shoreline, so conveniently located right outside the city, is a tremendous boon for recreation, beauty, and lifestyle. For example, today I got to work at home all morning, because high tide washed out our road and kept me from getting past our mailbox! That used to happen once a year or so, but this fall it's happened once a month. I wonder if it's our version of the dust storms during the Depression....

That's it for now. Back later with more on our region and real estate.