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Many Buyers Bring Cash To Settlement

May 7, 2014  |  by Chris Sicks

Cash DealsWould you believe that 23 percent of Baltimore-area home purchases last year were paid for with cash?

That surprised me, and made me wonder how purchases in the DC area were paid for, and how those numbers compared to recent years.

That’s why we prepared the charts below. As you can see, the percentage of purchasers that brought cash to settlement has risen significantly since 2008. Why?

Frank Fannon, a long-time mortgage banker in Alexandria, has some thoughts: “For years, if you wanted to get a mortgage with less than 5 percent down, you needed FHA. But, during the height of the housing boom, there were lots of 100% financing options, so why bother with FHA?”

Indeed, you can see in the charts that FHA borrowing dried up almost completely in the DC area from 2004 to 2007. More FHA loans were recorded in the Baltimore market, but not many.

“The ironic thing is, many of those borrowers would have been better off if they’d gone FHA back then,” Mr. Fannon says. “But getting a subprime loan often required less paperwork, it was faster to process, and people just wanted to get into their houses.”

Investors also enjoyed the easy lending policies of those days, so we saw fewer investors making cash purchases.

But, when sub-prime loans became unavailable, we saw an inevitable increase in cash purchases—not only because sub-primes weren’t an option, but because of the effect they had on the entire lending industry.

“Lending guidelines have gotten tighter,” says Mr. Fannon. “Our industry has shrunk. The deal used to be between the bank and borrower, but now you have to deal with all kinds of federal regulators who watch us work every day.”

“I know people who have $1 million in the bank, but are retired, so I can’t get them a $400,000 loan because they don’t show the cash flow on their tax returns. So they just buy that home with cash, instead. And there are lot of investors out there paying cash, too.”

DC Metro

To view a larger version of this chart, click here.

Baltimore Metro

To view a larger version of this chart, click here.

—Chris Sicks has reported on the Washington-Baltimore real estate market for over 20 years. Contact him at csicks@gmail.com.

Posted in Blog, Market Statistics

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2 responses to “Many Buyers Bring Cash To Settlement”

  1. jose says:

    Something to keep in mind and I do not see any comments about, is the interest (0.01% highway robbery) that the banks are paying for your money in the moneymarket/savings accounts, that means $220/year for each $100K.
    If you buy a property to rent, even after you pay all the costs of taxes, insurance, etc, etc, you will be making 70 times more than the bank is paying, so if you want to keep loosing money the bank is the best way to do it.

  2. Tara Winfree says:

    What about northern Virginia?

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