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> Certainly prices may come down in some locations as interest rates go up if there aren't enough cash buyers The interest rates make a huge difference here...

> Certainly prices may come down in some locations as interest rates go up if there aren't enough cash buyers The interest rates make a huge difference here...a hypothetical buyer who could afford $5000/month in payments would qualify for a $1.22 million mortgage at 2.75% interest, whereas that same payment at 7% would only cover a $750k mortgage. Cash buyers are generally about 25% of the market, which is a good chunk, but not enough to prop up prices if the other 75% of buyers they're competing with have had their purchasing power drop by 40% in the past 6 months.

Raidion 4y ago
FWIW, those numbers are off because of escrow and taxes. 1.22MM house means AT LEAST 30k in property taxes a year, which mean's they'll end up at >~7.5k a payment, which means they'll need to buy a smaller house.
- HarHarVeryFunny 4y ago
  Not where I live in NJ. 1.2M house is going to be < 20K taxes.
  - macNchz 4y ago
    Yeah this is very market dependent, especially with regard to whether there are state/local income taxes or the government depends mostly on property taxes. Here in NYC I’d expect to pay $10k or less in annual taxes for a property in that price range, however there are city and state income taxes plus apartment building building common charges. It’s hard to compare this stuff apples to apples, but the one constant regardless of locality is that higher rates significantly reduce buying power for people relying on mortgages.
  - googlryas 4y ago
    Where do you live in NJ? The average effective property tax rate is 2.470% of the home value. Property taxes would be ~$38k in Gloucester county(across the river from Philly).
    - HarHarVeryFunny 4y ago
      I'm in Ridgewood - Bergen county.
      - exhilaration 4y ago
        Is that the town-assessed value? This [1] shows 2.708% so on $1.2M that would be $32k in taxes, I think something is special about your situation? https://www.state.nj.us/treasury/taxation/pdf/lpt/gtr/2021taxrates.pdf https://www.state.nj.us/treasury/taxation/pdf/lpt/gtr/2021ta...
  - mancerayder 4y ago
    NJ and NY both have some pretty wide ranges of property taxes from town to town, county to county, not just because the percentages might be a bit different, but because their valuation systems are wildly confusing and inconsistent.
- nixgeek 4y ago
  Property taxes in WA wouldn’t be much more than $13k if the home had an assessed value of $1.22M. It also isn’t uncommon to see a big difference between the sale price and assessed value. One datapoint would be a $4M purchase that is only taxed at $2.2M the first year after the deal closed. At least in King County, the valuations do seem to “catch up more quickly” after a sale, so at +1y it might be $2.8M, at +2y it might be $3.3M, but to be paying >$30k here in taxes you’d need a >$3M assessed value home.
  - lotsofpulp 4y ago
    Seattle area property tax is usually around 0.75% of market value. Although, I would guess some are near or above 1% due to very recent declines in market value.
    - __derek__ 4y ago
      That seems low. My taxes were $9.40 per $1000 of assessed value in 2022. From searching around, I see an average 0.88% for King County (and apparently Pierce and Snohomish are higher).[1] [1]: https://www.tax-rates.org/washington/king_county_property_tax https://www.tax-rates.org/washington/king_county_property_ta...
      - lotsofpulp 4y ago
        Yes, last time I checked, the numbers were still based on outlier price increases in 2020 and 2021. It may already be at 1% or even higher for many people.
- turtlebits 4y ago
  Property taxes vary all over the country. They also can vary wildly if you have an older house vs new construction. In Seattle, where the housing market is considered expensive, a 1.2m house only pays $7k in property taxes
  - __derek__ 4y ago
    > In Seattle, where the housing market is considered expensive, a 1.2m house only pays $7k in property taxes Only if it has (a) an exemption or (b) an assessment well below market value. A typical house with a $1.2 million assessment will have paid over $10k in property taxes in 2022.
    - turtlebits 4y ago
      All properties assess below market value, even new construction. A 1.2m house will generally assess for around 800k.
      - __derek__ 4y ago
        That would be option (b) in my comment. Washington State law requires assessed values to be 100% of "true and fair value"[1] despite the fact that they tend to lag market value. [1]: https://apps.leg.wa.gov/WAC/default.aspx?cite=458-07-030 https://apps.leg.wa.gov/WAC/default.aspx?cite=458-07-030
- sokoloff 4y ago
  Varies widely by location. My house is around 2x that and my annual property taxes are under $15K/yr (Cambridge, MA).
seper8 4y ago
If the source of that cash is the stock market - or money gained from selling a previous house... Are cash buyers really 25% of the market in the US?
- chasebank 4y ago
  I think you're on to something here. My local anecdote - a few of my realtor friends said roughly 70% of all transactions in the last two years in Santa Barbara area have been cash deals. They also said currently those deals are all dried up. From what little research I've put into it, from the county assessors office it looks like 2.5k homes were sold last year in the area. Now think about this, we had an overwhelming number of people from LA and SF flee to Santa Barbara during the pandemic. How many of those people had temporarily won the stock option start-up lottery, ie. any tech bubble employee - zoom, pelaton, doordash, etc, or had a house that had spiked in value willing and was willing to swap homes. It doesn't take much when housing supply is at historic low and temporary bubble demand skyrocketed to throw the market all out of whack. Personally, I know at least 10 people that traded their zoom stock for all cash housing deals here in SB at the right time. Now that stock is worth 1/8 of what is was. I imagine that this scenario played out a few hundred times just in our little town. Extrapolate that nationwide, you can see what might have contributed to massive asset valuations that quite literally, don't make sense. In the long run, it shouldn't matter, however it will be fun to watch it all play out.
- spacemadness 4y ago
  Some “cash buyers” were actually taking loans against their stock assets.
  - lesuorac 4y ago
    And then a lot of them will take out a mortgage to payoff the loan against the stock after the house is purchased. Cash buying is one of those terms people don't understand. You're almost never getting a suitcase of 100's.
    - __derek__ 4y ago
VirusNewbie 4y ago
A lot of non institutional cash buyers are using their equities to qualify as all cash, and those war chests are down too.
HarHarVeryFunny 4y ago
Yeah, but some people switch to adjustable rate or balloon mortgages when they can't afford fixed. This is what I did when I bought my first house in 1988, with fixed rates over 10%.
- lazide 4y ago
  Better hope that interest rate doesn’t increase instead!
  - HarHarVeryFunny 4y ago
    Yes, indeed! If the rate increases are capped then you have a bit of control over it, as you do by choosing the adjustment period (1 vs 3 vs 5yr ARM).
kansface 4y ago
Is that actually correct? What about the down payment difference, as applied to the cheaper house?
echelon 4y ago
The other side of supply/demand is the supply. People sitting on 2% mortgages are not going to move. There's a lot of housing inventory that's locked away now [1]. We're going to enter a lower supply, lower demand market. The prices might not move much. [1] Maybe downsizing Boomers will balance this. I'm not aware of any measures of this trend, though. And a lot of Boomers just sold/downsized to take advantage of the high prices.
- nathanaldensr 4y ago
  Nearly my entire neighborhood consists of old Gen Xers and Boomers living in 2500-3500 sq ft houses, sometimes alone. It's insane. These people have decades to live in many cases. They are taking up these huge houses in smaller cities like mine so where are families going to go?
  - shagie 4y ago
    As one of those genx with a house larger than I need... yes. The flip side of that is when I bought this hose from (looking it up) silent generation owner who was moving to a nursing home, there wasn't any other housing inventory in the price range and area and cost. Buying an old house and fixing it up over the years was much cheaper than buying a new house another half an hour out of town that costs 2x-3x more. The buying a small house new house is still 2x-3x more than this old house would sell for. Other than that this is a big house, there is no reason to sell it at this time. Additionally, the new development that is being built is targeting the most money that can be packed into a single lot... and... well, I don't want or need that. If people want me to move out, build a nice 1-2 br 1.5 bath with a room for a home office on the quiet end of a street. I don't need a fancy kitchen. I don't need a place for fancy plates to show off in the dining room. I don't need a man cave with a bar or a three car garage... just something nice and sensible. And yes, it is certainly a problem. Housing supply has been woefully under built for a decade or more, and that which is there is not targeting what remains of the middle aged middle class that sees a 30 year mortgage when they're 40 as absurd. The less expensive supply is often getting bought up by people speculating, as a rental property (either by a landlord or by a company). Which brings us to "I've got a house, its paid off, going anywhere else reduces my net worth and gives me some debt that I'm unlikely going to be pay off before I retire - there is no reason to move at all."
HWR_14 4y ago
> Cash buyers are generally about 25% of the market Cash buyers often finance the property they buy. All a "cash buyer" means is that the deal is not contingent on financing, either contractually or as a practical matter. That is, they can guarantee the sale goes through with cash.
- sgt 4y ago
  I wonder then what the real percentage of "cash buyers" is.
  - HWR_14 4y ago
    I'm not sure. Certainly many people refinanced their houses to pull money out over the past few years or got margin loans based on their stocks. Using that money to buy a (different) house gets counted as a cash buyer in the 25% number. But do you consider them a cash buyer? If they later do a HELOC to pull money out of the new house? It's a tricky question that can really only be answered by looking at how leveraged assets in general are.
ako 4y ago
You’re probably better off buying at 7% than at 2.75% if housing prices are adjusted. You get the house for less, more room for profit when you sell. Also, if you’re force to sell, it’s better to do this on a loan of 750k rather than 1m.
- makestuff 4y ago
  Also if interest rates go down again in the next decade you can always refinance.
- s1artibartfast 4y ago
  That all depends on how long you stay and inflation rates.
- mancerayder 4y ago
  That's true but so far in many markets (like the Northeast) inventory doesn't seem to be rising. And thus prices aren't coming down. So it's a double whammy of high interest rates with the pricing from 2021. It's wild out there folks.
mancerayder 4y ago
> Cash buyers are generally about 25% of the market, which is a good chunk, but not enough to prop up prices if the other 75% of buyers they're competing with have had their purchasing power drop by 40% in the past 6 months. In aggregate in the U.S., but this and much other commentary in this thread doesn't consider enough the vast variation in local markets. There are spots where there's a higher percentage of cash buyers due to wealthier people living there, a larger contingent of foreign buyers, or people who sold homes in very expensive areas to buy in slightly-less-expensive areas. I'm seeing this where I am, where people are moving from the city (where a 1 BR apartment is easily over 1M, a 2 is 1.5-2M, etc.) to the suburbs, where an 800K house is considered pocket change. Not to mention some people have access to "cash" without having it. Some mortgage brokers, even from large banks, can arrange to let you use collateral to help guarantee a closing within a short time (eg. 30 days) letting you waive the finance contingency. In a given real estate transaction, someone waiving financing contingency is going to fall in to the category of "cash buyer", and it might not be obvious that the cash shown in the holdings (if it is even shown to the seller as proof of funds) came from a loan.
- grey-area 4y ago
  The price is set by the ability of other buyers. Doesn’t matter what one individual can pay if the climate points to falling prices, why would they overpay when they think prices will fall? Prices are set by willingness to lend and interest rates, not by cash buyers.
  - mancerayder 4y ago
    I was just responding to the poster who wrote, 25 percent cash buyers isn't enough to prop up the market. I don't know if it's enough or not, I was making the point that that 25 percent number is in aggregate for the entire large country and there are some insane skews in local markets where the number is much higher. But to directly answer you, if inventory is dried up, no one is listing, and the stuff that comes online is still priced like mortgage rates are 3 percent, that might kill off a large pool of buyer demand but those cash buyers are still the marginal buyers and bidding wars will ensue just the same. I'm seeing this at present.

Raidion 4y ago

FWIW, those numbers are off because of escrow and taxes. 1.22MM house means AT LEAST 30k in property taxes a year, which mean's they'll end up at >~7.5k a payment, which means they'll need to buy a smaller house.

HarHarVeryFunny 4y ago
Not where I live in NJ. 1.2M house is going to be < 20K taxes.
- macNchz 4y ago
  Yeah this is very market dependent, especially with regard to whether there are state/local income taxes or the government depends mostly on property taxes. Here in NYC I’d expect to pay $10k or less in annual taxes for a property in that price range, however there are city and state income taxes plus apartment building building common charges. It’s hard to compare this stuff apples to apples, but the one constant regardless of locality is that higher rates significantly reduce buying power for people relying on mortgages.
- googlryas 4y ago
  Where do you live in NJ? The average effective property tax rate is 2.470% of the home value. Property taxes would be ~$38k in Gloucester county(across the river from Philly).
  - HarHarVeryFunny 4y ago
    I'm in Ridgewood - Bergen county.
    - exhilaration 4y ago
      Is that the town-assessed value? This [1] shows 2.708% so on $1.2M that would be $32k in taxes, I think something is special about your situation? https://www.state.nj.us/treasury/taxation/pdf/lpt/gtr/2021taxrates.pdf https://www.state.nj.us/treasury/taxation/pdf/lpt/gtr/2021ta...
- mancerayder 4y ago
  NJ and NY both have some pretty wide ranges of property taxes from town to town, county to county, not just because the percentages might be a bit different, but because their valuation systems are wildly confusing and inconsistent.
nixgeek 4y ago
Property taxes in WA wouldn’t be much more than $13k if the home had an assessed value of $1.22M. It also isn’t uncommon to see a big difference between the sale price and assessed value. One datapoint would be a $4M purchase that is only taxed at $2.2M the first year after the deal closed. At least in King County, the valuations do seem to “catch up more quickly” after a sale, so at +1y it might be $2.8M, at +2y it might be $3.3M, but to be paying >$30k here in taxes you’d need a >$3M assessed value home.
- lotsofpulp 4y ago
  Seattle area property tax is usually around 0.75% of market value. Although, I would guess some are near or above 1% due to very recent declines in market value.
  - __derek__ 4y ago
    That seems low. My taxes were $9.40 per $1000 of assessed value in 2022. From searching around, I see an average 0.88% for King County (and apparently Pierce and Snohomish are higher).[1] [1]: https://www.tax-rates.org/washington/king_county_property_tax https://www.tax-rates.org/washington/king_county_property_ta...
    - lotsofpulp 4y ago
      Yes, last time I checked, the numbers were still based on outlier price increases in 2020 and 2021. It may already be at 1% or even higher for many people.
turtlebits 4y ago
Property taxes vary all over the country. They also can vary wildly if you have an older house vs new construction. In Seattle, where the housing market is considered expensive, a 1.2m house only pays $7k in property taxes
- __derek__ 4y ago
  > In Seattle, where the housing market is considered expensive, a 1.2m house only pays $7k in property taxes Only if it has (a) an exemption or (b) an assessment well below market value. A typical house with a $1.2 million assessment will have paid over $10k in property taxes in 2022.
  - turtlebits 4y ago
    All properties assess below market value, even new construction. A 1.2m house will generally assess for around 800k.
    - __derek__ 4y ago
      That would be option (b) in my comment. Washington State law requires assessed values to be 100% of "true and fair value"[1] despite the fact that they tend to lag market value. [1]: https://apps.leg.wa.gov/WAC/default.aspx?cite=458-07-030 https://apps.leg.wa.gov/WAC/default.aspx?cite=458-07-030
sokoloff 4y ago
Varies widely by location. My house is around 2x that and my annual property taxes are under $15K/yr (Cambridge, MA).

seper8 4y ago

If the source of that cash is the stock market - or money gained from selling a previous house... Are cash buyers really 25% of the market in the US?

chasebank 4y ago
I think you're on to something here. My local anecdote - a few of my realtor friends said roughly 70% of all transactions in the last two years in Santa Barbara area have been cash deals. They also said currently those deals are all dried up. From what little research I've put into it, from the county assessors office it looks like 2.5k homes were sold last year in the area. Now think about this, we had an overwhelming number of people from LA and SF flee to Santa Barbara during the pandemic. How many of those people had temporarily won the stock option start-up lottery, ie. any tech bubble employee - zoom, pelaton, doordash, etc, or had a house that had spiked in value willing and was willing to swap homes. It doesn't take much when housing supply is at historic low and temporary bubble demand skyrocketed to throw the market all out of whack. Personally, I know at least 10 people that traded their zoom stock for all cash housing deals here in SB at the right time. Now that stock is worth 1/8 of what is was. I imagine that this scenario played out a few hundred times just in our little town. Extrapolate that nationwide, you can see what might have contributed to massive asset valuations that quite literally, don't make sense. In the long run, it shouldn't matter, however it will be fun to watch it all play out.
spacemadness 4y ago
Some “cash buyers” were actually taking loans against their stock assets.
- lesuorac 4y ago
  And then a lot of them will take out a mortgage to payoff the loan against the stock after the house is purchased. Cash buying is one of those terms people don't understand. You're almost never getting a suitcase of 100's.
  - __derek__ 4y ago

VirusNewbie 4y ago

A lot of non institutional cash buyers are using their equities to qualify as all cash, and those war chests are down too.

HarHarVeryFunny 4y ago

Yeah, but some people switch to adjustable rate or balloon mortgages when they can't afford fixed. This is what I did when I bought my first house in 1988, with fixed rates over 10%.

lazide 4y ago
Better hope that interest rate doesn’t increase instead!
- HarHarVeryFunny 4y ago
  Yes, indeed! If the rate increases are capped then you have a bit of control over it, as you do by choosing the adjustment period (1 vs 3 vs 5yr ARM).

kansface 4y ago

Is that actually correct? What about the down payment difference, as applied to the cheaper house?

echelon 4y ago

The other side of supply/demand is the supply. People sitting on 2% mortgages are not going to move. There's a lot of housing inventory that's locked away now [1]. We're going to enter a lower supply, lower demand market. The prices might not move much. [1] Maybe downsizing Boomers will balance this. I'm not aware of any measures of this trend, though. And a lot of Boomers just sold/downsized to take advantage of the high prices.

nathanaldensr 4y ago
Nearly my entire neighborhood consists of old Gen Xers and Boomers living in 2500-3500 sq ft houses, sometimes alone. It's insane. These people have decades to live in many cases. They are taking up these huge houses in smaller cities like mine so where are families going to go?
- shagie 4y ago
  As one of those genx with a house larger than I need... yes. The flip side of that is when I bought this hose from (looking it up) silent generation owner who was moving to a nursing home, there wasn't any other housing inventory in the price range and area and cost. Buying an old house and fixing it up over the years was much cheaper than buying a new house another half an hour out of town that costs 2x-3x more. The buying a small house new house is still 2x-3x more than this old house would sell for. Other than that this is a big house, there is no reason to sell it at this time. Additionally, the new development that is being built is targeting the most money that can be packed into a single lot... and... well, I don't want or need that. If people want me to move out, build a nice 1-2 br 1.5 bath with a room for a home office on the quiet end of a street. I don't need a fancy kitchen. I don't need a place for fancy plates to show off in the dining room. I don't need a man cave with a bar or a three car garage... just something nice and sensible. And yes, it is certainly a problem. Housing supply has been woefully under built for a decade or more, and that which is there is not targeting what remains of the middle aged middle class that sees a 30 year mortgage when they're 40 as absurd. The less expensive supply is often getting bought up by people speculating, as a rental property (either by a landlord or by a company). Which brings us to "I've got a house, its paid off, going anywhere else reduces my net worth and gives me some debt that I'm unlikely going to be pay off before I retire - there is no reason to move at all."

HWR_14 4y ago

> Cash buyers are generally about 25% of the market Cash buyers often finance the property they buy. All a "cash buyer" means is that the deal is not contingent on financing, either contractually or as a practical matter. That is, they can guarantee the sale goes through with cash.

sgt 4y ago
I wonder then what the real percentage of "cash buyers" is.
- HWR_14 4y ago
  I'm not sure. Certainly many people refinanced their houses to pull money out over the past few years or got margin loans based on their stocks. Using that money to buy a (different) house gets counted as a cash buyer in the 25% number. But do you consider them a cash buyer? If they later do a HELOC to pull money out of the new house? It's a tricky question that can really only be answered by looking at how leveraged assets in general are.

ako 4y ago

You’re probably better off buying at 7% than at 2.75% if housing prices are adjusted. You get the house for less, more room for profit when you sell. Also, if you’re force to sell, it’s better to do this on a loan of 750k rather than 1m.

makestuff 4y ago
Also if interest rates go down again in the next decade you can always refinance.
s1artibartfast 4y ago
That all depends on how long you stay and inflation rates.
mancerayder 4y ago
That's true but so far in many markets (like the Northeast) inventory doesn't seem to be rising. And thus prices aren't coming down. So it's a double whammy of high interest rates with the pricing from 2021. It's wild out there folks.

mancerayder 4y ago

> Cash buyers are generally about 25% of the market, which is a good chunk, but not enough to prop up prices if the other 75% of buyers they're competing with have had their purchasing power drop by 40% in the past 6 months. In aggregate in the U.S., but this and much other commentary in this thread doesn't consider enough the vast variation in local markets. There are spots where there's a higher percentage of cash buyers due to wealthier people living there, a larger contingent of foreign buyers, or people who sold homes in very expensive areas to buy in slightly-less-expensive areas. I'm seeing this where I am, where people are moving from the city (where a 1 BR apartment is easily over 1M, a 2 is 1.5-2M, etc.) to the suburbs, where an 800K house is considered pocket change. Not to mention some people have access to "cash" without having it. Some mortgage brokers, even from large banks, can arrange to let you use collateral to help guarantee a closing within a short time (eg. 30 days) letting you waive the finance contingency. In a given real estate transaction, someone waiving financing contingency is going to fall in to the category of "cash buyer", and it might not be obvious that the cash shown in the holdings (if it is even shown to the seller as proof of funds) came from a loan.

grey-area 4y ago
The price is set by the ability of other buyers. Doesn’t matter what one individual can pay if the climate points to falling prices, why would they overpay when they think prices will fall? Prices are set by willingness to lend and interest rates, not by cash buyers.
- mancerayder 4y ago
  I was just responding to the poster who wrote, 25 percent cash buyers isn't enough to prop up the market. I don't know if it's enough or not, I was making the point that that 25 percent number is in aggregate for the entire large country and there are some insane skews in local markets where the number is much higher. But to directly answer you, if inventory is dried up, no one is listing, and the stuff that comes online is still priced like mortgage rates are 3 percent, that might kill off a large pool of buyer demand but those cash buyers are still the marginal buyers and bidding wars will ensue just the same. I'm seeing this at present.