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US property: cash buyers drive demand for speciality financing

Property sector updates

Cash buyers are stoking America’s red hot housing market. Nationwide, the number of homes on the market at the end of August was down 13 per cent on the previous year, according to the National Association of Realtors. The decline in stock coupled with rising demand from cash buyers means house prices jumped 15 per cent year on year. Moreover, homes sold in an average of 17 days, when 60 days is typical. 

Buyers who require a mortgage struggle to compete against those with ready money. Prospective homeowners are turning to start-ups that offer to help them line up cash bids of their own. Ribbon Homes, HomeLight, Orchard and Flyhomes are among the many so-called proptech companies that either front customers cash or buy a house directly on their behalf. The companies then resell the property to the buyer once they have secured a mortgage. 

A confluence of factors including stock market gains, cryptocurrency windfalls and the growing number of companies investing in residential housing have driven up the number of all-cash offers. Twenty-three per cent of all US home purchases in July were completed with cash compared with 16 per cent a year ago, according to the NAR.

Cash offer companies make money by taking a commission, usually 1 to 3 per cent of the purchase price. Flyhomes, which also acts as a real estate agent and mortgage lender, makes the bulk of its revenue from sales commissions or origination fees. 

Growth is aided by low funding costs. HomeLight, which just raised $100m at a $1.6bn valuation earlier this month, expects revenues to more than triple to $300m this year.

Ribbon claims that despite the fees, buyers still end up saving money. A tight housing market means non-cash buyers may have to bid above the asking price to make their offer more attractive to the seller. However, this situation depends upon an ongoing sellers’ market and funding costs staying at historically low levels. With inflation indices beginning to climb, neither are guaranteed.

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