As eager as everyone is to see a glut of first time homebuyers enter the market in 2013, they’re not going to have their pick of the litter if and when they do. Instead, they’re going to have some stiff competition.
From the glut of investors who have already entered the market! Unlike their newbie counterparts who will have to learn their way around the housing market, these investors already know how everything works. In fact, they’ve already learned how to adapt to the new features of today’s housing market and make it mesh with their own personal goals. It may have taken them awhile (after all, when’s the last time you heard anyone talking about buying homes for investment purposes?! It’s been a few years!) – but these investors have hit the ground running. And, they won’t hesitate to get down in the mud and fight over a home that they truly believe is a good deal. In fact, these investors are so serious about moving forward with deals that they’re prepared to offer sellers cash. According to recent surveys, the current rate of all-cash purchases is twice as high as the historic 12-year average.
Why are investors willing to put down cash?
It’s much easier than dealing with lenders. Before the housing bubble burst, getting approved for a home loan was relatively easy. So, if you were an investor, you didn’t have to put down much (if any!) of your own money to get your hands on a house. Then, you could make a few upgrades and turn around and sell it for a big profit just a few months later. Today, though, there’s much more red tape involved. So, investors are willing to put down their own money in order to avoid dealing with it. There’s also another benefit to doing an all-cash purchase – it makes these investors more appealing to sellers. If a seller has two offers – one from an all-cash investor and one from a first time homebuyer who has a traditional mortgage – the seller will likely go with the investor.
By selling to the investor, the seller doesn’t have to worry about any delays from a lender holding things up. They can get the deal finalized and move on to their new home with the least amount of effort. Unfortunately, though, most first time homebuyers don’t have the option of doing all-cash purchases. In most cases, all of their cash is going to go towards a down payment. After all, they’re not selling another property, so they’re not going to have a huge amount of cash coming in that they can use to make the purchase.
So, they’re going to be stuck doing things the old fashioned way. It doesn’t take them out of the race entirely, but it puts them at a disadvantage if there’s competition. And even though we haven’t seen a surge in first time homebuyers yet, the data shows that investors are already getting a leg-up. According to figures just released by DataQuick, so far, most of the competition has taken place over homes priced between $225,000 and $400,000 – with most of the first time homebuyers using FHA loans to finance their purchases. Nearly one-third of recent purchases went to investors who paid with cash. It’s important to point out that number is going up – while the number of first time homebuyer purchases is going down. So, what does this mean if you’re considering buying a home for the very first time? Be prepared for some competition. Even if you don’t get your dream home on the first try, don’t give up!
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