Message for potential home-buyers in Manhattan and surrounding communities:
Why is such a startling reassurance necessary?
Earlier this week, the National Association of Realtors released a study about the rise of cash purchases in the residential real estate market — and the numbers were stunning.
For instance, 31 percent of buyers nationwide paid cash for homes, apartments and other residential property in 2013, and that figure already has risen to 33 percent for the first quarter of this year.
Even more eye-catching, the percentage of cash transactions seems to be going nowhere but up — it was 29 percent in 2012 — after decades as a tiny blip in the real estate market.
The national Realtors group estimated that the number of cash deals never topped 10 percent until the foreclosure crisis that left so many cut-priced homes on the market for about three years, roughly from 2009 through 2011.
All this cash currently flowing into the market — and apparently here to stay for a longer term than industry experts ever predicted — conceivably could create a scary situation.
Leslie Appleton-Young, chief economist for the California Association of Realtors, laid it out in stark terms.
“I am worried, honestly, about having a real estate finance structure that enables people to borrow and get a reasonable mortgage,” she said.
“(Traditional buyers) are not able to compete with all-cash.”
Before examining the market in Manhattan and the Flint Hills region, it’s useful to know how all this cash came roaring into residential real estate in the first place.
“For one thing, it’s become a better investment than the stock market or things like savings accounts,” said Loren Pepperd, longtime local Realtor with G&A Real Estate in Manhattan.
“We’re seeing foreign investors in the market for the first time in any numbers. Then there are groups of people with some money, and they get together, maybe form an LLC, and buy land or an apartment complex. Rental property is a really good investment now, so it’s a good place to go for people with money.
“Also, on the local scene, consider how land values are going up. Property owners out west of Salina, for instance, now have a lot of extra money to invest.”
The other influential source of new money comes from “baby boomers” who have reached retirement age. Many have paid off mortgages and can afford to downsize using all cash.
“They definitely are a factor, and we’re going to see them continuing to have an impact on the market,” said Tim Russell, executive director of the Manhattan Association of Realtors.
“The good news is that baby boomers aren’t going have as much impact in Manhattan as they will in other parts of the country.”
Russell said he feels confident buyers looking for conventional mortgages or Veterans Administration (VA) loans in this area will continue to find deals that fit them.
“Some of the issues troubling other parts of the country won’t have the same problem here,” he said. “Our cash sales for last year and the start of ’14 are about 17 or 18 percent, compared to that 33 percent nationally.
“This area’s key market drivers haven’t changed much, and they probably won’t change. You still have the university and you have Fort Riley. These are people who are looking for traditional housing purchases, not high-end investments.
“We also have very stable lenders. In some parts of the country, there have been difficulties with distrust of lenders. Buyers here don’t have worry about that end of things.”
But what about outside investors overwhelming the market?
“We do have some investors coming in here,” said Byron Lewis of Landmark Real Estate in Manhattan. “But the numbers aren’t enough to be significant, or to change the picture for home buyers.
“The truth is that all real estate is local — and Manhattan is unique in a lot of ways.”
Besides, Lewis said, conventional deals simply aren’t going away in residential real estate.
“Buyers always will be able to find homes to fit their needs,” he said, “and sellers don’t really care whether the buyer has cash or is borrowing it from a bank. It’ll be cash to the seller, either way.”
Pepperd adds a point to that logic that should, in an odd sort of way, allow potential home buyers in this area to relax — no matter what’s happening in Florida or California.
“Maybe there are places where there’s so much cash in the market that a typical buyer could get squeezed,” Pepperd said, “but there are couple of things to remember if you’re looking to buy around Manhattan.
“We don’t have a whole lot of available land where giant investors can put these huge developments. Even with our growth, now and in the future, we’re going to remain a traditional type of market.
“And the other thing, even if it sounds cynical, is that banks earn their money by making loans. They’re simply not going to stop finding ways to loan you money for that mortgage.
“Property in Manhattan may keep getting more expensive — that’s another issue completely — but all these worries about cash in the market won’t change business for buyers here.
“A place like Miami might be crazy (60 percent of residential sales have been cash-only so far this year), but believe me, we’re just fine.”