A new study of Los Angeles homebuyers showed an amazing trend. Despite homes selling for a median price of more than $600,000, and homes in the pricier areas of the Westside going into the millions, more than 20% of homes are bought with cash.
Los Angeles Homebuyers Survey Results
During the second quarter of 2018, Attom Data Solutions found the following to be true among Los Angeles homebuyers:
- 5% of homes were bought with cash
- This was an increase of 2.4% since 2017
What This Means
When an area has a high number of cash deals, home values inflate. Why? Those with cash in hand can outbid those that have to go to use a financial institution. In general, those with cash are at an advantage when buying a home because they can:
- Offer a faster closing
- Are less likely to have issues before closing
That’s why during 2013, when almost a third of buyers paid in cash, prices jumped. Because prices had bottomed-out earlier, those with cash were willing to pay more than asking price to get the properties at a bargain, even if it meant paying a bit more than fellow bidders.
Who typically pays cash? Investors, particularly foreign buyers, and parents who want to buy something for their children.
In 2005, only 6% of homes were bought with cash, and at the turn of the century, it was about 11%.
Why the Uptick?
The reason for the increased percentage of Los Angeles homebuyers purchasing in cash may have more to do with the banking industry than having more buyers with cash on hand. Overall, the number of buyers is dropping.
After the mortgage crisis that crashed home prices, banks tightened requirements for home buying. In general, it is harder to get a loan now than it was prior to 2007. Plus, interest rates are increasing, which means that those taking out a loan have higher costs. All of this has led to less competition among the luxury homes.
However, those with cash don’t have to worry about any of this. In fact, higher interest rates are good for the all cash buyer. Why? Those needing a loan are less likely to overbid on a home because they can’t afford higher payments.
Whether you have cash in hand or will be using a lender, I’d love to help you find the right home on the Westside. Give me a call today, and I’ll give you some more insights into the local market.