While the May sales report released by the U.S. Commerce Department showed a significant drop in sales, most real estate agents were not surprised. When the 2009 First Time Homeowner Tax Credit expired last fall, a significant drop in sales also occurred. The market received a big sales boost when the new and revised legislation was expanded and amended to include existing homeowners in the most recent tax credit bill.
When the tax credit expired on April 30th, the real estate market was destined to take a hit. The 2.2 percent decrease in sales was larger than most agents expected but when one considers the number of buyers that rushed to get under the April 30th wire, the fall-off is not unnatural.
There are some interesting numbers in the May report. One of those numbers is the fact that 25 percent of all sales are cash transactions, or at least transactions that do not include mortgage contingencies. This suggests that May’s purchasers are very qualified and will either use cash to acquire the properties or have arranged private, alternative financing.
With today’s yields on bonds and on money market funds, private lenders may like the interest rates and security offered by prospective real estate borrowers. First time purchasers and purchasers with proven track records can very easily find private financing. These arrangements are usually made prior to the execution of a purchase and sale agreement so no mortgage contingency is necessary in the contract.
The absence of a mortgage contingency in negotiations can usually save the purchaser money on the front end, or purchase price. Sellers and buyers are wary of today’s lenders and the mounds of necessary paperwork required by the new reform legislation.
Another interesting statistic in the May Real Estate Sales report is the fact that 14 percent of May transactions were attributed to investors. The return of the real estate investor t the overall marketplace is very necessary to cut into the oversupply of real estate properties. For today’s investors, opportunity is knocking on the door.