(Source: By Hudson Sangree and Phillip Reese The Sacramento Bee) Homebuyers trying to take advantage of the current ultra-low mortgage rates are likely to discover an unpleasant truth: They’re competing with lots of other buyers who can pay all cash.

The cash buyers aren’t just rental investors, who have occupied the lower end of the market for months. They include those seeking midpriced homes for themselves or their grown children.

How do they have that much cash? Some sold higher-priced houses in the Bay Area. Some liquidated stocks. Others pulled it out of savings.

The number of cash buyers means those with loans are at a disadvantage in a market where inventory is extremely tight and decent homes draw multiple offers.

“Cash is king,” said Eric Pine, an agent with Lyon Real Estate in Folsom, who represents both cash buyers and those with traditional financing who have seen their offers repeatedly turned down.

Sellers prefer cash because it creates certainty and speeds up the process. It also eliminates the need for appraisers, who have become more conservative since the housing bubble burst and often deliver low estimates, agents said.

Low appraisals further complicate the process for borrowers, who already face stricter standards from lenders.

Pine’s suggestion to would-be buyers: Ask relatives for cash. “In order to compete,” he said. “You have to get family members to pony up.”

Here’s what’s happened:

As the market hit bottom this year and interest rates plunged to record lows, buying activity started to pick up. Meanwhile, the inventory of homes for sale remained extremely low. That’s helped push prices upward in recent months. Even so, housing affordability in the Sacramento region remains the highest it’s been in decades.

Some buyers are seeking to take advantage of the situation, but the scant supply of homes leaves them scrambling to find a decent house. When they do make an offer, they often get beat out by cash buyers.

“Cash buyers don’t have to go through the rigors of the loan process, and everyone at the moment is dreading appraisals coming in low,” said Gillian Long, a real estate agent with Intero Real Estate Services’ Folsom Lake office.

Those seeking to use Federal Housing Administration loans, with small down payments and tougher appraisals, are at an extra disadvantage. “Even with conventional buyers with 20 percent down … the cash buyer is going to come up on top,” Long said.

Cash buyers account for a large percentage of purchases across the region.

During the first six months of this year, buyers paid cash for about 3,000 houses, or about nearly one-third of all homes sold, in Sacramento County and West Sacramento, according to a Bee review of data from the Sacramento Association of Realtors.

In comparison, buyers paid cash for only 5 percent of homes sold in the county during 2007, at the tail end of the housing boom.

The data didn’t indicate who among cash buyers were investors and who were owner-occupants. But anecdotal reports from agents and buyers suggest that investors are largely buying homes below $200,000 and some between $200,000 and $300,000.

“The higher up you go, the rents don’t necessarily work out,” said Doug Covill of Coldwell Banker real estate in Sacramento.

About 20 percent of Sacramento County homes bought with cash during the first six months of the year, or 575 houses, sold for more than $200,000, according to the SAR data. Most of those homes, about 415, sold for between $200,000 and $300,000. The remaining 160 homes sold for more than $300,000.

Cash buyers contacted for this story declined to speak with The Bee or to have their names appear in the paper, but agents described their experiences.

Long said she represented a woman who liquidated her other investments to buy a house for herself in Folsom. She also had a client who sold his small house in the Bay Area and paid cash for a house in the upscale Serrano subdivision in El Dorado Hills.

Both bought in the $400,000 range – all cash – in the past six weeks, she said.

Covill said he recently helped a couple from China pay cash for a $217,000 house in Elk Grove to be near their daughter and her family during part of the year.

David Bicknell, owner of Intero’s Folsom Lake franchise, said his office has been working with a retired couple who want to downsize to a 3,000-square-foot, one-story house in El Dorado Hills.

Even though the couple sold their house in Granite Bay and are looking to pay all cash in the $600,000 to $700,0000 range, they have had to compete with similar buyers, he said.

“There are a lot of cash buyers out there competing against other cash buyers as well,” Bicknell said.

Call The Bee’s Hudson Sangree, (916) 321-1191.


©2012 The Sacramento Bee (Sacramento, Calif.)

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Moe Bedard
My name is Maurice "Moe" Bedard. I am the founder of America's #1 Mortgage Forum, LoanSafe.org. My online work has been featured in the New York Times, LA Times, Fox Business, and many other media publications.