In a record high, all-cash deals made up 43 percent of home sale during the first quarter this year. The figure is up 19 percent from last year's level's according to CNN reports. Experts attribute the trend to strict lending standards making it difficult for borrowers to get a mortgage and the intense competition for housing in many urban areas.
Daren Blomquist, vice president of RealtyTrac, who compiled the report, explained that even buyers who would be applying for mortgages in normal circumstances are increasingly making all-cash offers to boost their appeal to sellers. "If they have the ability to, homebuyers will put up cash bids just to jump to the front of the line," he said.
Defying industry experts' expectations, the increase in cash sales is taking place despite a negative trend in purchases by institutional investors, who are normally quick to make cash offers on foreclosures and short sales.
According to CNN's report, buyers paid an average of $207,668 for homes during the first quarter. The cash offers lead to a 13% discount to the properties' average estimated value. One quarter of cash sales were for foreclosed or distressed homes, helping to explain the discount in cost.
The most cash sales have taken place in Florida, increasingly by foreign buyers. However, New York, Memphis, Atlanta, Detroit, and Las Vegas all saw cash-deals make up over half the total sales.
The tightening lending standards for mortgages are a factor, although standards are loosening for adjustable-rate mortgages. Some borrowers can have trouble providing lenders with adequate documentation of their income, particularly if they are self-employed. The mortgage crunch can seriously affect these individuals' ability to compete with all-cash buyers. For lenders to effectively manage risk while bringing on new customers, it can be beneficial to have alternative data sources to draw on during a credit risk assessment.
