Great insight into this Crazy Market...from our friend and New York Times writer Jennifer Medina

As Home Sales Heat Up Again, Buyers Must Resort to Cold Cash

Monica Almeida/The New York Times

Jeff and Lorena Leininger with their children. The family had nine offers on their house three days after showing it.

By JENNIFER MEDINA and KATHARINE Q. SEELYE

Published: June 8, 2013

LOS ANGELES — Bidding wars sound almost quaint. These days, the only way for would-be buyers to secure a home, it often seems, is to offer all cash and be ready to do so within hours, not days.

Homes like this one near Los Angeles are selling quickly.

The bursting of last decade’s housing bubble feels like ancient history here, where first-time home buyers are competing with investors to get into single-family homes with prices approaching $1 million.

“It’s everyone from a kid out of law school to an investor from China, walking around with thousands to spend,” said Kameron Eliassian, a Los Angeles real estate agent. “I don’t know where it’s coming from, and I don’t care. Just show me proof that it’s there, and we’re good.”

After saving money for years, waiting for the residential real estate market to hit bottom, buyers all over the country appear eager to get back in, lured by low interest rates and the prospect of a good deal.

But with the number of homes for sale at historically low levels and large investors purchasing thousands of properties, buyers are facing a radically changed market and prices are quickly rising.

The percentage of homes bought with cash has shot up in many markets across the nation. Nearly a third of all homes purchased in Los Angeles during the first quarter of this year went for all cash, compared with just 7 percent in 2007. In Miami, 65 percent of homes sold were for cash deals, compared with 16 percent six years ago.

The prices on all-cash deals are also rising significantly. In Los Angeles, the median price on an all-cash home this year is about $351,000, compared with $230,000 in 2009. Over the same period, the median price over all increased to $410,000, up $85,000. In fact, last month, home prices in Southern California hit their highest level in the last five years.

All-cash buyers, typically investors eager to renovate and quickly resell or rent out homes, are making it more difficult for first-time buyers, who typically rely on mortgage loans that can take weeks or months to materialize. More California homes have been flipped in the last year than in any year since 2005.

And while Los Angeles may be a center of the frenzy, it is not an anomaly. Buyers in Boston are offering $100,000 more than the asking price or placing offers on homes they have spent only minutes in. In San Francisco, Miami and Phoenix, sellers are looking at dozens of offers within days of putting their home on the market, often accompanied by letters from would-be buyers professing their love for the property. New York City has seen similar drops in inventory, and prices have been rising steadily since 2009.

Shortly after Andres Alvarez, 36, got married last fall, he began to look for a home with his wife, figuring that their steady jobs, savings and good credit would make them the perfect buyers in Los Angeles. They were ready to spend $700,000. Their optimism deflated quickly.

“We thought we were the cream of the crop, but anything that was in our price range and move-in ready, there was this insane competition,” Mr. Alvarez said. They put in nearly a dozen bids, often losing to cash buyers, before finding a two-bedroom home for $650,000. “It might be a great time to buy, but it’s a horrible time to be a buyer,” he said.

Dick and Susan Yost can vouch for that. They wanted to downsize while leaving their home in Cambridge, Mass., to their son and his family. “We bid on eight places before we finally got one,” Mr. Yost said. “The worst we bid was $85,000 over the asking price, and we didn’t get it.”

Even unappealing homes, he said, had “people all over them.”

Still, there are plenty of skeptics wondering how long the sharp price increases can last.

“People are realizing we’ve probably hit bottom, but the kinds of spikes we’re seeing in places like California seems like history is repeating itself,” said Daren Blomquist of RealtyTrac, which monitors residential sales. “That’s not sustainable for the long term, at least not for the regular home buyer, so I think there are some warning flags there.”

For agents who spent the last several years scrounging for business, the change is welcome. When Mr. Eliassian listed a three-bedroom home in the Hollywood Hills for $699,000 this year, he worried that the current renters would make it difficult to schedule prospective buyers. But with just two open houses — one meant only for other agents — nearly 300 people came through.

“I had to turn the phone off to avoid people asking to see the place,” Mr. Eliassian said.

Within the week, he had six offers, and the home sold for $745,000. He said he had represented and sold homes to more cash buyers in the last year than at any other time in his career. 

Lewis Legon, a developer in Salem, Mass., jumped into the Boston market after he saw how many people were showing up at open houses. “It was like Times Square,” he said of one open house, at a property listed for $1.5 million. He beat out two dozen other bidders by offering $1.8 million in cash, not the first time he had made an all-cash offer.

“The first time I was ready to have a heart attack,” he said of all-cash buy. “But it makes you a more attractive buyer and helps you stand out.”

He also waived the inspection clause, an increasingly common practice. While offers have typically included appraisal clauses, allowing buyers to back out if the home was valued below what they were willing to pay, offers today are more likely to include escalation clauses, saying buyers will pay an additional amount over the highest bid.

“Buyers are taking a lot more risks than they ever would before,” said Dana DeSimone, a Boston real estate agent who called the current market an “insane asylum.” “I don’t know that I’ve ever heard of waiving the inspection contingency on a 150-year-old brownstone until now.”

Now, agents say their biggest challenge is potential sellers who are wary of putting their home on the market because they fear they cannot find a place to buy.

Jeff and Lorena Leininger considered moving from their suburban Los Angeles home over the last several years, but they feared they would not get as much as they paid for it. But this year, with their youngest child getting ready for kindergarten, they decided it was time. Three days after showing the home, they had nine offers.

“It felt as crazy as it was back when we bought 10 years ago,” Mr. Leininger said. “But it was much worse on the other side. We would show up to an open house, and it was already sold. The clear message was: be ready to move fast or just get left out.”

Even in Florida, where the market was once swamped with foreclosures, there are signs of the latest boom, with cash purchases fueled in part by international investors and retirees awash in cash after selling their homes elsewhere.

Don Faught, a manager with Alain Pinel Realtors near San Francisco, said the current market is turning buyers to desperation, particularly because the turnaround has come so quickly.

“A year ago, people didn’t want a deal, they wanted a steal,” he said. “Sellers were listing homes for less than what they originally paid for them and offering all these concessions. Now, the only concessions are coming from the buyers.”

His office has begun to track the number of offers clients make before landing a property. The current record: 27 offers, nearly all at or above asking price.