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More cash purchases on homes may not bode well for housing market

More homes are being purchased in South Florida with cash. Amazingly cash purchases are now occurring more often in this region than are mortgages. About 69 percent of homes paid cash in Palm Beach County during the first three months of 2014 as opposed to 42 percent being purchased with cash during the same period in 2013. Similar numbers were reported in Broward County as well.

Why are there so many cash purchases of property occurring? Besides there being a shortage of properties for sale, interest rates are beginning to see an increase and lending standards have been tightened. This has also created difficulties for first-time buyers who may be unable to compete for homes against prospective buyers who are willing to pay cash.

This may be an indication that a housing recovery in South Florida has not yet arrived. "It's not a sustainable recovery to have such a heavy reliance on cash purchases," stated one realtor.

Many investors have been buying foreclosed homes relatively cheaply as prices bottomed out in 2012. Yet with all of these purchases, prices then significantly increased for a number of homes. This has also led some analysts to voice concerns about another housing bubble. Still, investors believe that there will be more modest gains for housing prices during the remainder of 2014.

Potential first-time buyers may be squeezed out by such a market. Homeowners who are underwater on their mortgage may also feel increasing stress - especially when there are prospective buyers willing to pay cash. However, there are loan modification attorneys who know how to work with banks to negotiate for the best sort of deal. Keeping people in their home can make for a more stable housing market.

Source: Suns Sentinel, "More South Florida homebuyers making cash purchases," Paul Owers, May 8, 2014

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