Cash Buyers and Investment Firms Exacerbating Struggles of Average Homebuyers in Florida
If 2021 was ‘the year of the seller' in terms of South Florida real estate, it is clear what this meant for the buyer. 2021 was arguably the toughest year in recent memory for buyers looking to purchase a home, and 2022 has started off with much the same. So many things are stacking the cards against buyers, including skyrocketing prices, severely depleted inventory, and incredible competition. Two additional, sometimes overlooked, factors making the market difficult for your everyday buyer are the prevalence of cash buyers and investment firms entering many Florida markets.
Typically, the vast majority of homebuyers purchase a home with financing by acquiring a mortgage. Your everyday buyer does not have hundreds of thousands of dollars in cash on hand to purchase a property all cash. A big problem for most buyers in 2021 was a great influx of cash buyers infiltrating markets across South Florida and winning competitive deals. Why would a seller go with a cash buyer instead of one seeking financing? Cash deals tend to close more quickly than a deal that has to go through the mortgage underwriting process.
Many buyers lost out to all cash buyers from out of state looking for a lockdown refuge last year. In Palm Beach County, for example, 40% of all home sales in 2021 were paid for in cash. This was a 30% increase in cash deals! In the Florida Keys real estate market, the same was seen. In 2021, Florida Keys home sales with cash transactions accounted for more than 34% of all deals. The number of cash deals in the Keys jumped nearly 36% year over year from 2020 to 2021. It is difficult for your average buyer to compete in a market with so many cash buyers and so few properties.
Another aggravating factor in the market has been the increase in investment companies purchasing properties. Redfin reports that in 2021, 18% of homes nationwide were purchased by investors. Florida is a prime market for an investment company to purchase, moderately renovate, and flip or rent the property as the market is hot for both relocation and vacation. In 2021, inventory of Florida Keys listings was down nearly 32%. With competition so strong and properties so scarce, the increase in competition from investment companies definitely exacerbated buyers’ struggles.
What can be done to combat these issues facing buyers? One of the best things that any buyer can do is to get pre-approved and start the underwriting process before you even start your home search. Not only will this give you a better idea of what you can afford, but it will serve to show a seller that you are qualified to close on their property and enable you to close a transaction more quickly. This will make you more attractive as a buyer and will make it less favorable for a seller to go with an all-cash competitor.
Most industry experts predict that 2022 will be moderately better for buyers than last year. Though there are still many factors in favor of the seller, this year will hopefully prove to be less of a struggle for those looking to purchase a home.
