All-cash sales have surged across the country, and Bay Area cities are realizing some of the biggest spikes.
As of November 2015, 38.1 percent of real estate transactions of condos and single-family homes in the US were sealed with all-cash deals. That number is up 7.2 percent from the same time the year prior, and marks the biggest level of all-cash transactions since early 2013 after 29 consecutive months of yearly slumps.
San Francisco doesn’t exactly rank all that high among metro cities with the most all-cash sales across the country – it only lands at number 46 among the top 50 markets in the US for all-cash transactions.
But this city has certainly made some ripples on the water as of late, with the San Francisco-Oakland-Hayward metro region experiencing the biggest yearly uptick – 89 percent to be exact – in all-cash sales of any area in the country with a minimum of 1 million residents. Of all real estate sales in the San Francisco area, all-cash sales account for 37.2 percent.
San Francisco isn’t the only California city on the list. Close behind San Francisco-Oakland-Hayward is the San Jose-Sunnyvale-Santa Clara region, which increased 74 percent in all-cash real estate transactions year over year. That marks the second-highest increase in all-cash sales in the nation, which currently accounts for 31.6 percent of sales in San Jose.
So what’s behind the boost in such confident buyers?
It’s interesting that such an increase occurred not long after the new disclosure rules for mortgages – otherwise known as the TILA/RESPA Integrated Disclosure – came into effect in October 2015. Such increased transparency makes it an even greater challenge for buyers dependent on mortgages to go up against liquid cash-heavy buyers in a market that’s already extremely competitive.
The market in San Fran – and the Golden State in general – is hot. And with a shortage of inventory, the competition can be fierce. For this reason, some local buyers are coming in with all-cash offers in order to better compete with other interested parties.
Oftentimes these types of purchases are done with the help of family, after which a mortgage is taken out when the offer is accepted and the deal is done. With the housing market as hot as it is in San Francisco, buyers often need to pull out all the stops for the sellers to sway in their favor.
In fact, San Francisco clocks in at 24 percent of the counties in the US with the highest percentage of post-purchase mortgages.
But perhaps other factors have played a much bigger role in the all-cash real estate transaction increases in San Francisco, and the country as a whole.
Plenty of foreign buyers with cash in hand are contributing to this increase as well, especially considering the current negative economic climate overseas. In particular, Chinese buyers are making up a big portion of foreign all-cash buyers, as they seek out safer investment havens in the US real estate market compared to the volatile one on home soil.
In fact, Chinese nationals are increasingly becoming the biggest percentage of foreign buyers of American real estate. According to the National Association of Realtors (NAR), Chinese buyers spent about $28.6 billion on US homes from March 2014 to March 2015. And among these, 51 percent of their transactions were done in California, New York, and Washington, and 76 percent of them were all-cash.
Older, Affluent Buyers
Perhaps the most accurate and prominent profile of the all-cash buyer in San Francisco and neighboring communities are those in their 50s and 60s.
In fact, it’s this demographic of buyers who have contributed to 40 percent of all-cash transactions in the Bay Area. Whether they’re successful investment bankers, or are associated with family money, it’s this group that’s really upping the all-cash transactions in the city.
But these younger Baby Boomers who are approaching their retirement years are more apt to moving into the homes they purchase without financing rather than flip or invest. Two-thirds of these older, wealthy buyers of homes that were sold in all-cash transactions were simply moving in, with plans to stay for the long haul.
One thing’s for sure: given the fact that San Francisco is home to six of the eight most expensive cities in the US to purchase real estate, these all-cash buyers must be coming in with serious hauls to the negotiating table.