Cash is King?

UnknownRecent stats say somewhere in the range of 30% of the homes being sold these days are all-cash transactions. For most of the 26 years I’ve been doing this, the notion that our Santa Cruz real estate market could be made up of this many cash buyers would have been – unthinkable.

Sure, there was a big influx of folks flashing cash on this side of the hill, during the real estate wave of the late 90s. That’s when IPOs and Stock Options were raining down new-found money, like manna from heaven, into the laps of a growing number of thirty-something tech-types.

And ironically, many of those techies that hastily ran out and bought houses with the unexpected windfalls burning holes in their pockets were, in hindsight, very happy/lucky they did. Specially when NASDAQ crashed in 2000 and left lots of co-workers holding close-to worthless options at the same time they were expected to pay taxes on the inflated value the stocks had when they were first issued the previous year.

At least those early-real estate adopters ended up with brick and mortar assets, cool roofs over their heads and something tangible to show for all those crazy, code -writing marathons they had pulled. Instead of nothing or even less than nothing in some cases.

But all-cash wasn’t the king in real estate before then. And all-cash didn’t register that big of an impact on our Santa Cruz market after that. Until recently that is. Even when real estate fever spiked and the market rose to its most en fuego pitch in the peak years of 2005-06, people rarely offered cash.

It wasn’t considered smart or fashionable at the time. Leverage was the name of the game. And to do that you needed as much OPM (other people’s money) as you could get your hands on. And that wasn’t much of a problem when the mortgage market was handing out easy qual, no qual and sub-prime loans like Halloween Candy to anyone who showed up at the door.

In 2008-2009 the market imploded and old ways of doing things slipped into a black hole. Notable trends were difficult to discern. Other than – it was damn hard to get a loan of any kind.

Sometime in and around 2010-2011, cash started to emerge as a bigger player in the growing number of transactions that were happening. When a surge of multiple offers hit in the spring of 2012, all-cash offers pumped up their street cred. And by 2013 the best chance to compete in a market that suddenly had a lot less houses to choose from, cash bulled it’s way to the front of the line and became the very best way for buyers to compete against other multiple offers – something that was becoming the staple of a new market normal.

So much for a brief history… let’s turn ours attention to the more salient question that so many Agents and Mortgage Brokers have turned their attention to and been scratching their heads about: Where is all the cash coming from?

More next week.

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