The “Ben” I’m talking about above is Ben Bernanke, chairman of the Federal Reserve. He announced recently that the Federal Reserve is aiming to keep interest rates low through the end of 2014. So what has that got to do with real estate? Plenty, in my opinion. It’s driving a frenzy of cash buyers into the marketplace like I’ve never seen.
Mortgage rates have been dropping the last few years to nearly historically low levels. That is helping drive some buyers back into the market to buy homes because they can qualify, but not at the rate we’ve seen in the past. This could be due to tougher underwriting, or pessimism from buyers, or damaged credit scores.
But the biggest increase has been in 100% cash buyers, not buyers getting financing. One big reason is that along with mortgage rates, rates on savings accounts, CDs, etc. are also plummeting. So this low-rate environment is really punishing savers. It’s not very exciting to get .4% (please note the decimal point) on your cash. So that is driving many people, both foreign and domestic, to put their cash to work by buying real estate and then renting it out. While you have the challenges of being a landlord, at least you can hope to get a higher rate of return on your cash, and then also hopefully enjoy some appreciation in the future. On top of the low rates on savings accounts, you also have all the upheaval and uncertainty across the globe, which is sending foreign investors here in droves as a safe haven. They look at the collapse in our real estate prices as a buying opportunity.
So if you are a pre-approved FHA 3.5% down buyer, or even a 20% down buyer with conventional financing, don’t be surprised to get beat out quite often by 100% cash buyers, especially in the lower price ranges.
If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty