Nearly one in every eight metropolitan Milwaukee homes sold this year through April was paid for entirely in cash, up almost 44 percent from the same period in 1996, an analysis of sales data shows.
All-cash closings swelled to 12.2 percent–491 of 4,016 sales–in the Milwaukee-Waukesha-Ozaukee-Washington market as of May 1, according to data supplied by the Metro Multiple Listing Service in Wauwatosa. In 1999, all-cash deals had an 8.5 percent market share through April, a figure consistent with the three years before that. The figures include single-, two- and multifamily homes.
Realtors credited the increase to “new wealth” derived from the stock market, inheritances, an influx of corporate transferees to the area and money saved through capital gains tax laws.
“You ask today, `Are you better off than you were five or 10 years ago?’ and, on average, people will say, `Hell, yes!,'” said Bill Malkasian, executive vice president of the Wisconsin Realtors Association in Madison, which commissioned the analysis.
“I know there’s the issue of the rich getting richer and the poor getting poorer, but overall, we’re fatter and happier today, with greater net worth,” he said.
“A lot of people made a lot of money in the 1990s stock market, to the point where I hear of $500,000, $700,000 cash deals all the time,” Malkasian said. “They’re using cash because that’s their mentality. If they paid cash for stock, why not real estate? And, while they’re not speculating, they are buying with an emphasis on investments–recreation properties, lake properties and raw land.”
Molly Abrohams, a broker with Coldwell Banker Residential Brokerage in Shorewood, said: “I’m seeing a lot of very young people with a lot of buying power and a lot of Baby Boomers who have been very successful in life. Some customers have inherited wealth, but some have worked for it, saved and put that money in the stock market and now want to use the funds to enjoy life.”
Madison realty consultant John Englehardt said, “Stock market earnings, higher pay, Baby Boomer inheritances, transferees from more expensive markets, Y2K worries and the chain reaction from the ’97 change in capital gains, which (had been) artificially keeping people in homes–this situation is probably a combination of all that.”
The recent downturn in the stock market may have created the impetus for the increase in cash transactions, Englehardt said.
“Right now, residential real estate seems to be a cash investment avenue that makes sense for a lot of people, given the (financial) markets’ uncertainties and the other choices–maybe 5 percent in a bank account or art, which isn’t very liquid.”
Malkasian and Englehardt are among those who think the all-cash market is fed in part by the 1997 change in capital gains tax law, which allows an individual to retain $250,000 and a married couple $500,000 in home sale profits.
“It’s an influx of wealth of a different kind for us, a wealth almost irrespective of the local economy,” said Peter Shuttleworth, executive vice presidenct of Metro MLS, the multiple listing service. “You get someone who’s got an IPO (initial public offering) and just put $6 million in his pocket, or someone who just sold a $600,000 house on the coast and can find the same house for less in River Hills, paying cash is nothing.”
If some people are using cash to pay, others are using it as a competitive edge, brokers say.
“People are using cash so the offer to buy is not really contingent on anything. In a multiple-offer situation, you want to write something as clean as possible, so somebody else doesn’t get the house. It’s form over substance–they’ll probably wind up getting financing–but it works,” said Jim Behrend, broker associate at Realty Executives-Integrity in Hartland.
Dick Kollmansberger, president of First Realty GMAC in Waukesha, said, “It reminds me of the ’60s and ’70s, when people were confident they could get financing if needed. A lot of people have money in 401(k) plans with their employers, plus stocks and other accounts.
“It’s like the cash offer I just wrote for someone–$100,000 in one account, $50,000 in another, some stocks, $100,000 equity in property–and the bank wrote a nice letter that they have in excess of what’s needed to make the deal.
“In reality, they will borrow some to make it all happen. But the cash is there, if needed,” Kollmansberger said.
Where today’s cash-flavored housing market heads from here is a big question, realty agents and researchers said.
Englehardt sees the current situation as a temporary “market kickup.”
Bill Minett, broker owner of The Real Estate Co. in Oconomowoc, disagreed, citing four demographic trends: Baby Boomers, born in 1946 through 1964, are in their most economically productive years and beginning to inherit their parents’ estates.
Many stock and mutual fund investors who haven’t already transferred profits to the real estate market may be mulling that option.
The “downsizing” market, homeowners moving to smaller or more compact quarters, is expected to grow.
There is a growing number of trust-fund children, the offspring of affluent Baby Boomers.
