Cash is King? Not so fast…

Cash is NOT King

Once interest rates hit over 5%, we’ve been hearing about how the market has slowed, buyers are pulling back, and deals are falling through. All of that is true – sort of. But the reality is that the market is still hot – it’s just not as intense!

As you’ll see in the video here, rates have moved over 5% in 2022. Part of the challenge for buyers is that the interest rates shot up over 5% in just 30-45 days. An increase of about 67%. When you buy a house, you look at the price – and the price is the price. For the cost of money – the “price” of that money is the interest rate.

To keep interest rates down, buyers are turning to adjustable-rate mortgages (ARMs) or paying points on their mortgages to push down the interest rate.

So it makes me want to think about what’s going on with financing and what is that doing with the market place here in Northern Virginia. And – is cash now starting to take over the market?

2022 – The Northern VA Market’s Tight

First – we are still in a tight market in Northern Virginia. And one of my teammates recently had 14 offers competing on a $950,000 property. It escalated ABOVE $200,000.

Not everything is escalating like that, but right now in Fairfax County, the average list to sold Price is still 100%. So, we are seeing that type of activity going on, and those interest rates don’t seem to be having that hard of an effect on it. Historically, you can see, we have not been in this territory for almost 10 years.

The last time we were over 5% was March 2011. So just a decade ago we were in that territory. The last seven or eight years we’ve been used to these 3-4% loan programs. And just last summer, we were at 2.5%. This quick of an increase in interest rates is going to give a little shock to the system, but what it’s really going to do is weed out some of the buyers that maybe couldn’t buy a house at those higher prices with those medium level of interest rates.

The remaining buyers that can afford that higher rate means they’re not going to have as much competition, they may need to adjust their purchase price – but it can really work in their best interest.

For cash buyers – honestly, the interest rates are not affecting their purchasing power – or payment. Since they have neither of those. But the term Cash is King is what you will be hearing more and more of in this higher interest rate environment. Honestly – I disagree.

Cash is King WHEN IT SHOWS UP.

Consistently, cash is king only about 11 -12 percent of the time. Overwhelmingly, the #1 type of purchase funding is conventional financing – which accounts for roughly 75% of the types of financing used in any given month.

Government insured loans, like VA and FHA, account for 14% of financing types.

Cash is King – only when it’s enough cash to beat out the bottom line of the offers using mortgages, and is ensured to provide the seller with a higher bottom line. If the cash still requires a home inspection and appraisal – then actually, it’s just another financing.

What is king, actually, is the waiving of terms – like home inspection, appraisal, HOA violations – those type of things that can actually stall a sale if the buyer desires to use them to cancel the contract.

If you receive a cash offer along with a conventional – be sure to weigh out the terms as well to ensure that you’re looking at a King. Obviously, if it wraps you up with so many contingencies that the cash buyer could pull their offer – you just may have a King with No Clothes!

Anthony Carr is an Associate Broker with RE/MAX West End in Falls Church, VA, a boutique and powerful office serving the whole VA|MD|DC market.

Anthony has been licensed since 1995 (yes, there were houses being sold back then!). He has worn many hats in this business, including agent, sales trainer, director of education as well as a managing broker in the robust market of Washington, D.C.

Currently he applies a steady, stable hand to his own real estate business as an associate broker in Virginia, Maryland and Washington DC.

He has trained and coached thousands of agents in the DC area.

Anthony was a journalist and real estate editor before launching his career as a full time real estate professional. He wrote the book “Real Estate Investing Made Simple: A commonsense approach to building wealth”; and he was a contributing writer to the book, “The Best Real Estate Advice I Ever Received.”

As a columnist for RealtyTimes.com, Mr. Carr wrote hundreds of articles that circulated worldwide. A sought-after expert in the industry, Mr. Carr has been interviewed by news outlets nationwide, including the Los Angeles Times, The Washington Times, Woman’s World magazine and numerous webcasts. He has also been featured several times on CNN’s Open House broadcast.

Mr. Carr was the editor of The Washington Times’ Friday Home Guide in the 1990s and served 8 years as the Director of Communications for the Northern Virginia Association of Realtors before launching his real estate business.

Anthony Carr

Anthony Carr is a seasoned real estate professional with Anthony Carr Associates LLC, affiliated with RE/MAX West End, a powerful office serving the whole VA|MD|DC market. He has helped sellers, buyers and investors just like you who desire to build their personal wealth through home ownership. Working with Anthony and his team, you'll benefit from the deep experience he has corralled from his diverse career - investor, Realtor, published author, blogger and problem solver. Anthony authored the book “Real Estate Investing Made Simple: A commonsense approach to building wealth”; and was a contributing writer to the book, “The Best Real Estate Advice I Ever Received." He is married to his bride Corinne; father to Andrew, Austin, Rachel and Robyn; and Pop-Pop to three energetic grand kids!

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