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Cash is king in tight US real estate market

Cash is king in tight US real estate market

As followers of the US real estate market are well aware, lack of supply is the number one problem facing buyers at the moment. In some parts of the country, inventory levels stand at less than a month and tight supply is forcing prices up almost across the board. As a result, buyers resort to desperate measures to secure a home, with the most successful being paying for the entire purchase in cash

Burgeoning prices and dwindling supply 

According to a recent survey by the property portal Redfin, 52% of US real estate sales went to buyers who offered more than the list price in January. The figure is 40.2% higher than the same month in 2021, reflecting the frenzied market conditions. 

In addition, nearly 6,000 properties in the US have sold for at least US$100,000 more than their list price this year. 

Bidding wars are, in turn, forcing prices up on a monthly basis with double-digit upticks the new normal. For example, in January, house prices went up by 15.4%, according to the National Association of Realtors, bringing the average to US$350,300. 

Buyer solutions for a tight market 

In a hugely competitive market, buyers have no alternative but to look for creative solutions. Another Redfin survey has found that cash reigns supreme in the US real estate market. All-cash offers overwhelmingly clinch the deal with over measures such as waiving the inspection contingency insignificant. 

According to the data, cash buyers are four times more likely to bag a purchase this year than in 2021. This tactic ranked overwhelmingly as the most successful, increasing chances by as much as 334% in some cases. 

Waiving financing contingency and having a pre-inspection were two other effective measures to close a deal. They were successful in 31% and 25% of purchases, respectively. 

On the other hand, including an escalation clause or waiving the inspection contingency had minimal effect on the outcome of the transaction. 

Tactics for the US real estate market in 2022

After a particularly busy January for property in the US, buyers’ big question is how long will this situation last? According to Redfin, the current fierce competition for homes could lessen in the second half of the year, bringing some relief to would-be buyers.

However, this scenario depends heavily on whether supply levels increase in the most popular markets. Judging by recent monthly statistics, a significant rise in inventory seems unlikely. In Florida, for example, there is just one month’s supply of single-family homes available on the market, a situation that has hardly changed over the last year. 

A less competitive market for buyers also depends on rising mortgage rates. This case appears more likely, as recent upticks in interest rates have shown. They went up to over 4% in February alone. However, analysts point out that although rates are higher, they remain low compared to historic averages and are unlikely to force house prices down. 

No choice but to rent 

In many cases, would-be buyers have no option but to rent. However, this market has also seen massive upticks over the last year. According to Realtor.com, they went up by 19.8% in the year to January in 50 of the largest markets. 

In both the property and rental markets, current market conditions create the perfect scenario for buy-to-let investment, particularly in the most popular states in the US, such as Florida. 

(Source: Redfin)

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