The housing market remains healthy as a new report by Freddie Mac indicates that the lack of inventory of houses is at a two month supply in larger cities. Freddie Mac’s outlook for August also indicates that because of the highly competitive market it is causing many more people to offer cash sales reducing mortgage originations.
Cash sales made up about eighteen percent (18%) of total home sales for June. This is an increase of the historical average of ten percent (10%). The result is there is a loss in mortgage originations of $172 billion because cash sales are above historic norms. “During the financial crisis, the combination of depressed house prices and tighter underwriting drove the share of cash sales as high as thirty-five percent (35%)” according to Freddie Mac.
The report also states:
“Usually, not many people like to invest a lot of cash into real estate, which is illiquid and has high transaction costs. However, in the current, highly-competitive housing market, a cash offer is an effective way to gain an advantage over other bidders. In a cash sale, the seller doesn’t have to worry about the buyer’s ability to obtain a mortgage or the chances that an appraisal will come in below the agreed sales price. Cash offers also are more common in purchases of investment property and second homes, where mortgage qualification requirements are stricter and mortgage terms are less attractive.”
Freddie Mac also believes that home sales will reach 6.2 million units this year. This would be a three percent (3%) increase year over year. The market is primarily being stifled from growth potential by the supply in the housing market.
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