Sunday, August 23, 2009

SFGate: First-Time Homebuyers Competing with Investors

by Calculated Risk on 8/23/2009 09:16:00 AM

We've discussed this all year, and this is happening in many low priced areas ...

From Carolyn Said at the San Francisco Chronicle: 'Cash is king' in market for foreclosed homes

"Since January, I've put in 10 bids (on foreclosed homes); some were up to $80,000 over asking price and were still turned down," said [first-time home buyer, Jay] Nielsen, 41, a medical assistant. Each time, the banks selected offers from investors with all-cash offers - even when those offers were lower than his, Nielsen said.

"Cash is king right now," said Glen Bell of Keller Williams Realty in Berkeley. For foreclosed homes, "a cash offer that hits the target price will many times trump a higher-priced offer with a loan. The ability to close has become just as important to banks as price. The prospect of a property being tied up longer, still on their books and then falling out is costly."

The result is that average consumers say they are being shut out because they can't compete against deep-pocketed investors snapping up homes to rent out or flip. ...

All-cash sales are most common where prices are low and bank-owned properties account for the lion's share of listings. In foreclosure-ridden Pittsburg, for instance, 42.7 percent of home sales in the first three weeks of July had no record of a purchase loan, according to county data analyzed by MDA DataQuick. The median price for those transactions was $105,000.
There is a buying frenzy right now for first-time homebuyers trying to take advantage of the $8,000 tax credit (see 6 things to know for details) before the program expires at the end of November (must close escrow by then).

Meanwhile cash-flow investors are buying properties in the same price range (the numbers don't work on higher priced homes). In some of these areas, the only buyers are first-time homebuyers frequently using the tax credit as their downpayment and investors. The sellers are banks or short sales.

Not exactly signs of a healthy market.