The cash and FHA teeter-totter in Sacramento

Cash has been a growing force in the Sacramento market, while FHA loans have been losing power. Anyone in the trenches of real estate knows this because of how difficult it is to get into contract right now, but it’s telling to see the data actually back it up. When looking at stats from this past year in particular, we see this trend: More cash deals equals less FHA loans.

FHA and cash sales in Sacramento real estate market - by Sacramento Appraisal Blog

I’ve still been doing a fair share of FHA appraisals for my lender clients, but I’ve noticed my workload has had far more conventional appraisals lately. This could be just me of course because of the type of business my lender clients are attracting, but I think it’s in part to the shifting market too.

Unemployment Rates in Sacramento County through September 2012 - by Sacramento Appraisal BlogUnemployment Rates: By the way, another trend to pay attention when sifting through real estate data is the unemployment rate. Click on the thumbnail image on the side to see the trend of unemployment in Sacramento County from January 1990 through September 2012. Feel free to use the image on your own blog or website too (please use according to my sharing policy). If you need the image split in two or resized, let me know.

Questions: Where do you see this trend going in 2013? If you are an agent, have you been accepting FHA offers lately? Why? Why not? How has it been for FHA buyers competing with cash and conventional offers lately?

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  1. says

    Cutting edge stuff my friend. Often we won’t read about that until 45 days past the quarter’s finish – Feb 15 2013. Thank you for the “feet on the ground” report!

  2. says

    Hi Ryan. These are good trends to know. FHA buyers tend to hibernate so it’s a seasonal shift. And they have been discouraged by the bidding wars. The FHA appraisals are more rigorous and most buyers need or ask for a seller credit. Not to mention, it may take more than 30 days to get the loan funded. FHA buyers are the second least preferred buyer for sellers. (VA comes with even more oversight and hoops.)

    I have at least 10 buyers watching their MLS portals every day.

    I/we need listings.

    • says

      Thanks for the insight, Jay. Cash and conventional are so much stronger than FHA right now. I’ve seen some pretty creative buyers out there trying to get into contract with FHA by offering money above the appraised value (if the appraisal comes in lower). Or FHA buyers will offer far more than the list price (but then sellers know it won’t appraise that high). It’s not easy right now. Having a good agent becomes all the more important now.

      I’m so glad to hear you have so many buyers in the pipes. Now it’s just a matter of having houses on the market for them…

  3. says

    That is an interesting trend. So long as the inventory remains tight, it will probably continue.

    I did a quick look at the Q4 numbers and found that on average FHA transactons closed for 101.6% of the asking price while Cash closed for 101.4% of asking on average. The median was 100% of asking for both.

    The choice is pretty simple for a seller. If they receive two otherwise equal offers and one has none of the pitfalls of financing while another does, they are going to go with cash.

    • says

      I agree with you, Patrick. Well said.

      I’m so glad you mentioned the additional stats. While FHA buyers have seemed to be less inclined to ask for 3% in closing costs lately, even asking for 1-2% back nets less than cash. That’s not easy to compete with. It has to be tricky out there to be a buyer’s agent with FHA clients.

      I will say an investment company I know recently changed their policy to only accept owner-occupant offers for the first 7-10 days (so buyers can have a fighting chance to compete with cash – and hedge funds specifically). This doesn’t mean they’ll never sell to investors, but it’s nice to see some flippers considering the current market and how to benefit owner occupants.

      • says

        The government is not a benefit to any process. The “First Look” program is mitigated by the proprietary process, documentation, and communication. The government would help by getting their fingers out of the pie.

        • says

          I can’t disagree with you there about the role of government. The “first look” I was talking about is a private flipper who made that decision after seeing hedge funds hoarding the lower-end of the market (flipped sales around $150K or so).

  4. says

    Real Estate is in an interesting phase to watch…the slower changing housing market is easy to follow, but the mortgage side of it is tougher w/all the changes.

    I appreciate the article!

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