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The reign of cut-rate mortgages and easy home loans has finally come to a halt in South Florida, making way for the return of the king — CASH.
According to Zillow.com, about 54% of home purchases in Palm Beach, Broward andMiami-Dade counties were cash buys in the final quarter of 2010. That’s about 7,530 homes and condominiums between October and December that were paid for with cash instead of borrowing. In South Florida’s real estate zenith of 2006, just 13% of sales were in cash. In pre-boom 1997, cash buys made up 31% of the market.
Of 11 major metropolitan areas in the country studied by Zillow, South Florida had the highest percentage of cash buys in the fourth quarter of last year.
Corcoran Group agent Anthony Pizzarelli, who specializes in downtown West Palm Beach condos, states: “I haven’t pulled a mortgage in six months. You just have a lot of people with a lot of cash running around.”
Many of those financially blessed consumers, however, are not South Floridians buying a homestead.
Investors and international buyers are driving the cash deals, including Canadians who get loans in their own country to buy winter escapes here with ready money.
Stricter lending standards also are contributing to the plethora of cash buys.
Spring Hill, Tenn. residents during the summer, Bill and Clara Marie Jessup typically rent a place in South Florida through the fall and winter.
This year, with bargain-basement home prices, the couple decided to buy. They shopped for about two weeks before getting a $149,000 cash contract on a three-bedroom, two-bathroom pool home in Palm Beach Gardens that is bank-owned.
Clara Marie Jessup said they decided to pay cash because they believe a home will bring a better return on their money than a CD or other investment.
“Any kind of interest income is so low right now, we might as well put it into a house,” she said. “If prices go down any more, they’re not likely to go down appreciably.”
Ally Bank was offering 1.84% interest last week on a three-year CD. Nationwide Bank offered 1.85%. Jessups’ Realtor Shannon Brink, of Re/Max Prestige Realty in West Palm Beach states: “Hopefully it’s a good sign that the economy is turning around. People are spending money again on Florida real estate.”
According to reports released last week by Realtor groups, sales of existing homes jumped nationally and in Florida in January. Statewide, sales were up 14% compared with January last year. They rose 36% in Palm Beach County.
The National Association of Realtors said the increases were fueled by cash purchases, which accounted for 32% of January home buys nationwide. That’s the highest level since the group started measuring cash deals in October 2008 when they accounted for 15 percent of the market.
According to Kent Clothier, CEO of REI Marketing, LLC in Boca Raton, in Palm Beach County, 2,039 cash deals were done in the last few months of 2010, up 45% compared with the same time in 2009.
William Stronge, a professor emeritus in economics at Florida Atlantic University, said the cash buys are indicative of how far the market has fallen, and will have both a negative and positive effect on South Florida.
While cash is helping sell homes to international investors, it’s not helping create financial sector jobs in the mortgage industry. He states: “In that sense, there might be a slight negative. But on the other hand, you’re attracting people into the market who might not have come otherwise.”
A cash deal is a necessity for Paul Advani. A Toronto Realtor looking to buy a place in South Florida, Advani said he wouldn’t qualify for a U.S. loan. He states: “That doesn’t mean I have cash, cash, cash in my pocket. But I can borrow here and pay cash there.”
Plus, Advani said he thinks he’ll get a lower price with cash. He concludes: “They know the deal is done when it’s cash, there’s no waiting. Cash has power, cash is king.”
