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Are mortgages out of style?

By Marcie Geffner · Bankrate.com
Thursday, March 10, 2011
Posted: 9 am ET

Realty brokers are quick to observe that in today's housing markets, "Cash is king."

In fact, given the rise in the proportion of all-cash home purchases, it might be fair to say cash is not only king, but the whole royal family.

During the housing boom, buyers wanted no-money-down mortgages, which allowed them to buy homes with no cash of their own in the deal. But recent data from the National Association of Realtors suggest that a third of today's deals are exactly the opposite of that: all cash, no loan.

The Mortgage Bankers Association this week reported a surge in its purchase-money index, which tracks the volume of new loan applications to buy a home. But in the prior week, the same index was down almost 20 percent compared with the prior-year period.

Fewer home sales could account for some of that decline. But the perception -- and reality -- that mortgages are difficult to obtain and that cash buyers have an advantage in offer negotiation are part of the story as well.

Brett Sinnott, director of secondary marketing at CMG Mortgage in San Ramon, Calif., suggests a few other factors that also might account for a drop in mortgage applications:

  • Investors who've been stockpiling cash are now putting that money into real estate and don't need loans to make purchases.
  • Property management firms, subject to caps on the number of real estate investment loans they can get, are using cash from rents or other sources to purchase properties.
  • Former homeowners who cashed out before house prices dropped and have been renting are returning to homeownership, reinvesting their equity and no more.
  • Lower home prices and a preference for less costly homes help more buyers purchase a home outright without financing.

Cast your ballot: Cash or financing?

Follow me on Twitter: @marciegeff

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4 Comments
Pamela Moldan
March 21, 2011 at 5:28 pm

IF you obtained a mortgage in the past several years, you're probably "underwater" with that mortgage, even if you put down 20%. I can verify that my bank will not even TALK with anyone who is NOT late on their payments, therefore, there's thousands of people that cannot refinance to obtain a lower finance rate as my bank would rather see these people go into foreclosure than to lower the rate!
We don't qualify for modifications (which are a mistake, anyway, IMO). The banks need to make the same change that HUD needs to make with the reverse mortgages and that is... to allow the current homeowner to purchase the home at the lowered amount at which they would allow a complete stranger to buy the home at foreclosure/short sale/whatever.
For an extra 2 cents, every bank high ranking executive should go directly to jail. I'd pay that.

Dan
March 12, 2011 at 8:17 pm

Why don't you do an article on the new Dodd/Frank bill regarding Loan Officer compensation. This new rule could be the final nail in the coffin for small independent brokers and also by a big henderence to the housing recovery.

Chris
March 11, 2011 at 9:39 am

What about current homeowners who no longer have a mortgage, and decided to sell and move to a different house - and didn't require a new mortgage?

ngan
March 10, 2011 at 11:36 am

financing...only a few actually have enough to buy a house outright.

who has 100k-200k (or even more in lots of places) in the bank to do this? people barely has that amount for retirement.