Cash sales of South Florida homes didn’t exactly go on total lockdown during April. But buyers sporting all-cash offers weren’t nearly as common the streets as before COVID, either.
Just 11.1 percent of single-family transactions closed in Broward County were for cash during April, according to figures from Miami Realtors. That is off 44.1 percent from 19.8 percent the same month last year.
That’s definitely an eye-catching falloff in percentage terms. But keep in mind that all closed sales for the country, including financed transactions, were down 36.1 percent. So if cash buyers are relatively inactive, they’re not the only ones.
Still, why would cash sales be down significantly more than overall home sale traffic? As with so many oddities of 2020, COVID is behind it.
March, if you can recall, was the craziest month in the history of the U.S. stock market. The Dow Jones Industrials Average plummeted 14 percent, bringing the year to date decline to 23 percent and marking the end of the longest running bull market ever.
What this has to do with South Florida home sales is that many cash buyers sell stocks to raise folding money to buy their homes. They went to the sidelines waiting for the stock market to bounce back. As the Dow rises, so likely will cash sales.
But the slump in cash sales may not only be due to buyer wariness. Another important factor could be seller skittishness.
Across the country, according to the National Association of Realtors, the supply of homes for sale in April was down 19.7 percent to 1.47 million. That, according to the NAR, is the lowest April inventory figure ever. It’s due to sellers pulling homes off the market, perhaps in part because they don’t want a bunch of strangers traipsing through their living rooms during a global pandemic.
The inventory decline is even bigger than the 17.8 percent decline in April closings compared to last year. And back in post-recession 2010, the April falloff in closings was bigger yet. The cause then wasn’t an infectious disease or an inventory decline. It was due to the end of a one-time homebuyer tax credit.
When home sellers get cold feet and inventory declines, all else equal, prices tend to go up. And that’s happened this time. Median single-family sale prices for Miami-Dade County were up 7.3 percent in April, according to Miami Realtors. That matches the national price expansion, which rose to a new all-time high of $286,800 for the median home sale.
Fewer homes on the market and higher prices tend to discourage cash buyers, naturally. Couple that with hard-hit stock market portfolios and it may be surprising cash sales aren’t down even more.
This is all part of a nation-wide trend. From March to April the percentage of individual investors and second-home buyers – who often pay cash – fell from 13 percent of the total to 10 percent. And the national percentage of all-cash buyers followed along – down to 15 percent from 19 percent in March 2020 and 20 percent in April 2019, says the NAR.
If you’ve been tracking all these figures, you noticed that the South Florida cash sales declined even more sharply than the national ones. The explanation for that is: International buyers.
Buyers from other countries love South Florida homes, and they tend to pay cash more than American buyers. The Naples market, for instance, reported the second-highest percentage of cash deals out of 166 larger U.S. metro areas, according to real estate data provider Attom Data Solutions. In Naples, in fact, most deals – 50.4 percent — were for cash in 2019.
More recently and closer to home in Palm Beach County, 36.5 percent of April sales were cash transactions. While that was off from 45.6 percent last year, it’s still more than twice the national figure.
There’s no denying that COVID has been the biggest global event in the lives of most people living today. But even before the coronavirus pandemic started cash sales have been trending down for years.
In 2019, when trick-or-treaters were pretty much the only non-criminals wearing face masks in public, nationwide all-cash purchases accounted for 25.3 percent of single-family and condo sales, according to Attom. That sounds like a lot compared to 2020, but that is down from 27 percent in 2018 and 27.7 percent in 2017.
And cash buyers have been a lot more active in the not-too-distant past. The all-time peak was just after the last recession. As the housing market rebounded from financial crisis in 2011 and 2012, cash sales topped out at 38.4 percent of all transactions. Right now, it turns out, we are about back at the pre-recession average of 18.7 percent of home sales going for all cash between 2000 and 2007.
It may seem odd to say in such profoundly unsettled times that the more things change, the more they stay the same. However, one element in the real estate business these days is actually back to about what it was in the old days – or at least the early years of the 21st Century. That is, namely, the share of South Florida home transactions made for cash.
Bear in mind, however, that fewer cash sales is not necessarily a bad thing. And the latest data on South Florida home sales shows trends toward higher prices, selling prices closer to list prices, less time on the market and less time to close. So the general news about home sales today is good.