will cash offers become the norm? – Idaho Business Review
Real estate cash transactions are on the increase. Nationally, 23% of real estate transactions are cash sales. These figures are up from 17% in the same period last year. It’s a similar story in Idaho. In July, the number of cash offers in Ada County accounted for 20% of all transactions, up from 16.3% the year before. All this while the median house price increased 33.4% from July 2020 to July 2021 ($ 120,000!). At Homie, we’ve seen many buyers lose a home they really wanted to another buyer who had the money. All of this makes us wonder, is cash buying the future of real estate?
Money is always king. According to some research, cash offers increase the chances of buyers to own a home by up to 290%. That’s serious firepower, especially in a hyper-competitive market with limited supply. When the average Idaho home sells in five days and receives multiple offers, it makes sense for someone to use the money for an edge, as long as they have it. The problem is, not everyone has that kind of money in their hand or in the bank. They are the ones who are missing out on getting the home they want in today’s real estate market.
There are also concerns that institutional investors like Blackrock will use their money to buy more stocks, making it harder for the average American to compete and forcing more people to rent. While it’s true that investors contribute to low inventory levels in Idaho and elsewhere (they make about 20% of real estate purchases nationwide), that’s not all. About half of investors use cash to pay for their investment property, and that number hasn’t changed much in recent months. On the contrary, a smaller proportion of investors are buying cash now than they were several years ago. Investors do not make all cash purchases.
The increase in cash-only offers is largely driven by wealthier and older people who have the equity to forgo a traditional mortgage. No one is pointing fingers at these individuals for “ruining” the market. These are people who use what they have to get what they want. There is nothing inherently wrong with that. But how does the ordinary person compete when investors, institutions and newcomers make the market more difficult? Will cash-filled Californians be the only consumers to gain when they move to cheaper real estate markets?
Fortunately, you don’t have to be a Californian to bid cash in Idaho (although we wouldn’t blame you for coming here, it’s nice). Homie launched a program for Idaho homebuyers in August through the home equity loan portion of the business that allows homebuyers to upgrade their cash offer with a business advance to a qualified buyer, who refinances later.
It all looks good on paper, but will it actually work? We’ve already seen cash make a difference for many first-time buyers of Homie Cash. A buyer looked at over 20 homes and made three traditional offers well above the asking price. They tried the traditional route for a month and got nowhere. The first cash offer they made was accepted. Even with cash, they were still worried that the sellers would reject their offer. Who knows what could happen in this market? In this case, the money helped them close the deal. We believe other Idaho companies will likely start offering similar services soon. I’m sure we won’t be the only ones doing this once others see that it works.
Taking all this into account, we believe that cash will play a big role in real estate transactions in the future. As it stands, this may be the only way to break into increasingly competitive housing markets like Idaho. Without access to cash, most people will no longer be able to access property.
Homie and Homie Loans are affiliate companies that are both owned by the same person. Both have operations in Idaho.