The greater Phoenix, Arizona area has experienced a surge of sales activity as of late. February home sales in town reached a four-year high. The uptick is being attributed to buying activity from investors and all cash purchases. It is not the only city where cash sales have been growing in popularity, however, the purchases are breathing new life into an area negatively impactedby the mortgage meltdown.
Over the past few years, home ownership in the Valley of The Sun, (AKA Phoenix, Arizona), has steadily declined. Since 2006, local home ownership rates decreased from 71 percent to a low of 67 percent (September, 2010). During that time period, county auction sales and real estate owned property transactions caused by foreclosure accounted for a bulk of home sales. The February, 2011 statistics provided by research firm DataQuick have shown an overall increase in sales activity marking a 6.2 percent increase over the same time period as last year.
About the Phoenix Real Estate Market
Phoenix, Arizona earned an unfortunate reputation for being an epi-center for the mortgage meltdown. Prior to the real estate bubble bursting, the city was booming courtesy of home sales and mortgage activity. It turns out that many of the homes bought during the real estate boom were financed with subprime mortgages. As the fragile house of cards began to crumble, a bulk of Phoenix homeowners ended up underwater on their home loans. As a result, a large assortment of properties became real estate owned (REO) and accounted for 67 percent of all home sales.
Since local properties hit their peak fair market value in July, 2006, Phoenix home values have retracted by up to 60 percent (Time.com). The pattern has continued as the median sales price has dropped year-over-year for the eighth consecutive month (DataQuick). The average home sales transaction is valued at $100,000 or less. According to the research firm, that price point has accounted for over 40 percent of all of Februarys home sales transactions.
Cash Is King
From coast to coast, cash transactions are fueling the real estate industry. According to the National Association of Realtors (NAR), cash purchases, not traditional mortgages, comprised one third of all home sales transactions in February. In Southern California, cash transactions became a popular trend with Mr. Monopoly and his friends as DataQuick reported that 62.2 percent of home buyers paid cash for properties exceeding the $5 million mark.
Although cash sales transactions in Phoenix have grown, the properties feature smaller price tags below the $100K point. Cash purchases accounted for more than two-thirds of the 7,248 properties that closed escrow in Phoenix's Maricopa-Pinal counties metropolitan area. The properties sold were a mix of new homes, resale houses and condos. Overall, cash buyers accounted for a 48 percent of all home sales in February.
The Case Against Cash Sales
While paying cash for a home can release individuals from the burden associated with monthly payments, that option would eliminate the perks associated with mortgages. Mortgage holders get a significant tax break courtesy of the interest paid on home loans. The legal deduction applies to mortgage interest on homeloans up to $1 million for qualified primary residents or second homes. That break on can result in thousands of dollars of savings of income taxes due.
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