Would you pay cash to buy a home?

house cartoon By Cristina DC Pastor

“What are we, Russian?”

The husband and I are in the market for a condo. Zillow is a delight to browse but also a surprise when we see listed houses specific on what they want: “cash sale only.”

And that’s when we ask ourselves that question. Russians, Arabs, Chinese and other wealthy foreign investors are known to snap up real estate and pay in cash. Some of them do not live in their “stunning penthouses” but rent them out. But by paying in full, they have pushed up the value of real estate beyond what ordinary people like us can afford.

Apparently, paying in cash is a trend no longer exclusive to oil sheiks and billionaires. It’s an option easily available to foreigner clients who may have a hard time applying for mortgages, it is also one of the boxes to check for the middle-class market of Remax and Century 21 in New Jersey.

“Yes, that is a trend among foreign buyers because they don’t have credit histories to begin with,” said Edwin Josue, an associate real estate broker for Halstead Properties. “But Americans, they would rather have a mortgage as they know that buying real estate is subsidized by Uncle Sam.”

The Wall Street Journal lists the pros and cons of cash-only transactions: Pros: No need to go through lengthy mortgage process, certain tax breaks may apply, as well as discounts for goodwill. Cons: Liquidity. You don’t want to deplete all your savings on your dream house even one sitting on a huge corner property with an in-ground pool and a wood-burning fireplace. In life, urgent expenses will always turn up and you need to have the cash when that happens.

This caveat may apply to the moderately wealthy. Not so much to the cash-rich who have way too much of it and can afford to spend on whatever emergencies will come their way.

There are tax benefits to buying a home in cash, as we’re learning from our agent. That there is no nagging mortgage payment for 30 years is something of a relief. That property taxes, moving and other expenses can be written off come filing season is another incentive. Paying cash, according to him, should not leave the buyer financially vulnerable. He can borrow against the value of his paid-up property.

“Some would rather pay cash to close as early as possible and that can have an effect on a negotiated price because it is a cash deal,” Josue said.

To be sure, paying cash upfront is not an option for us, but the idea that even regular folks are now considering it and going for it made us pause that perhaps the real estate market is back up and booming. The Great Recession of 2008 triggered by reckless subprime lending appears to be behind us. Our agent is now talking about “solid gains” and “lack of inventory.”

Our search for a house continues. The moral lesson in “The Big Short” is always at the back of our minds. But as we browse listings and salivate over well-maintained lawns and cul-de-sac charm, we can’t help but share with many American families the lingering hurt and anger that no banker ever went to jail for that 2008 housing mess. ###

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