Cash plays a big role now when buying or selling a home

cash-plays-a-big-role-now-when-buying-or-selling-a-homeCash is playing a more significant role in residential real estate sales right now than at any time in recent memory.

Across the U.S., the median down payment on houses was 22% last year, according to a study by Zillow.com of sales involving conventional mortgages in nine major U.S. cities. That’s the highest figure ever since the data started being kept back in 1997.

By comparison, just three years ago the figure was 11%. And back in late 2006, it was only 4%.

The main reason for the change is that banks are tightening their standards and demanding larger down payments to qualify for mortgages. Banks are figuring that borrowers who can afford a larger down payment are less likely to default.

Many people who don’t have a large enough down payment to qualify for a conventional bank mortgage have been looking into alternative mortgages, such as those backed by the Federal Housing Administration or the U.S. Department of Agriculture.

Another startling statistic is that 28% of home sales last year were all-cash transactions, according to the National Association of Realtors.

When that organization first began tracking all-cash sales, back in late 2008, the figure was only 14%.

In some markets, the percentage is much higher. In the Miami-Fort Lauderdale area, more than half of all home sales last year were all-cash deals, according to Zillow. In Phoenix, the figure was 42%.

The numbers are another reflection of the fact that banks have tightened their lending rules - the proportion of all-cash deals is higher because the number of people who can qualify for a typical mortgage is lower.

However, the extremely high percentage of all-cash sales also suggests that a growing proportion of homes are being purchased not by families, but by investors and speculators who believe that the housing market has hit bottom and is poised for a rebound.

If they’re right, then this could be an excellent time for people who can afford to buy a new home to do so.