Wikinvest Wire

Cash offers for bank owned property soar

Wednesday, February 25, 2009

Earlier in the decade, when we sold our house in Southern California and began our odyssey as renters, my oft-stated comment about someday becoming homeowners again would usually involve some sort of talk about buying property again at a much lower price when interest rates are at historically low levels.

So far, that continues to be a good bet.

Rates on 30-year mortgages are still in the five percent range, a level that is freakishly low by historical standards, but seems almost normal these days. While rates are sure to go much higher someday, that day probably won't come anytime soon in fear that the entire global economy will begin circling the toilet bowl even faster.

But, with time comes reflection.

After watching what has developed over the last few years and then seeing all the government responses to bail out the banking system and "save" the economy, not long ago we started thinking along the lines of just paying cash when we go to buy a home sometime in the next year or two.

The prospect of not having any mortgage lender involved in our next real estate transaction has taken on a surprising new appeal over the last year or so and, come to think of it, the whole idea of having a mortgage just rubs me the wrong way these days.

The notion of paying interest to some zombie bank that will probably just sell our loan to an even bigger zombie bank (Fannie or Freddie) just doesn't seem like an enlightened thing to do.

Apparently we are not alone in thinking this way as anecdotal evidence continues to mount that those with cash-in-hand are getting some pretty sweet deals on bank owned property, which is all the more reason for us to involve only one bank in transaction - the one we'll be buying the house from.

This report in today's Wall Street Journal has an update on the bank repo market:

Bargain-Hunters Descend, Cash in Hand
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.

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.
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."
That's a perfectly reasonable response by banks and it sounds like a good plan for us - I can't imagine they'll have any less inventory a year or two from now or that there will be substantially more first-time home buyers.


Nostradamus, apparently said...

Sounds like a GREAT plan!

Anonymous said...

kudos tim for having the foresight.. i look forward to hearing about it when you buy again..

Nostradamus, apparently said...

BTW, thanks for the news link to Bruce Krasting:

He's a genius! His posts are all VERY well thought out.

FWIW, He believes that long term rates will start to rise later this year.

Since I invest in CDs, I sure hope he's right. It's hard to see how these freakishly low rates (as you say) can go on...

If that's true, once again, housing prices could stay low as the inventory piles up and rates start to climb.

If rates rise, it seems that it will be a VERY LONG time before house prices go up...

Russ said...

There is one slight caveat I must make to the story.

Bank-owned REO is seeing more cash offers and the offers are being accepted. Fannie and Freddie REO is also seeing more cash offers and the offers are being rejected.

We all know why that is.

Noz said...

Looks like a lot of crooks made out well and are now back for more.

Anonymous said...

Left the Northeast in 04... bought in Southeast and did exactally as you are contemplating. So far it has worked out very well. Husband wanted to sleep at night and the Interest rate deduction was laughable by comparison to No Worries!Best Wishes! S.

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