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In the mortgage industry, there’s a mystery that continues to baffle the lending and real estate market: Why have cash buyer rates increased after the recession?
Typically, after a recession, mortgage rates drop to promote spending, and slowly rise as more people take advantage of the opportunity.
Instead, the most recent housing crash has frightened buyers and real estate flippers into saving. The need for loans has increased significantly, yet cash buyers still outnumber other offers 5:1. More than 30% of all current real estate transactions are cash-based. In fact, post 2009, cash buyers grew to 50% of the market from 5% in 2006.
For those without the cash, it may be difficult to outbid the competition for a home. But the affect of cash buying on the market may also create openings for the savvy observer of real estate markets.
Consider below why cash is playing such a surprisingly large role in transactions.
Cash Is Less Complicated
Cash transactions are simple and don’t have to abide by the same regulations as mortgages. This means buyers don’t have to provide credit history, permanent citizenship or proof of revenue or large investment income. Cash makes the buying process quicker and easier, which is why cash offers have a leg up on the competition in a bidding war.
Cash transactions have disadvantages though. A story in The Los Angeles Times notes that “Los Angeles real estate has… attracted criminals seeking to launder ill-gotten gains by purchasing its tony mega-mansions.” As of late July, all-cash buyers of L.A. county luxury homes will have to disclose their identity. To be sure, this isn’t the case for all cash transactions, however, it shows what can happen when mortgage companies aren’t involved and regulations are bypassed.
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