A lot of homebuyers and sellers have been speculating that many higher priced homes are being purchased without financing; known as “all-cash” purchases. We decided to do a survey of more expensive homes purchased in the north end of San Francisco since the first of the year, to see just how true the speculation was. Is it true that Cash is King?
In our survey we took the 5 zip codes in the north end of San Francisco that include Pacific Heights, Presidio Heights, Sea Cliff, The Marina and Russian Hill. We searched the tax records for sales recorded from January 1, 2014 to June 13, 2014 on properties with a sale price of at least $3.5 Million.
Tax records show the sale amount of the properties as well as the loan that was recorded on the properties at the time of sale. Properties that had incomplete information were not considered in calculating the results.
It turns out that the speculation was largely accurate. Of the 21 homes that met the criteria and whose data is available in the county records; 10 of them with a total value of $81.8 million were purchased “all-cash”. That equates to 48% being purchased without financing.
There were $40 million in loans on the $144 million total purchase price of the 21 homes resulting in an average loan to value ratio of 27%. When we examine the loan to value ratio of just the 11 homes purchased that had financing even that is a low ratio of 64%. The majority of traditional home loans have a loan to value ratio of 75% to 80% (loan to value ratio = loan amount / home purchase price.)
High-end homebuyers are parking their money in real estate, as are many investors across the wealth spectrum. It is no surprise that popular cities like San Francisco have seen dramatic home price increases over the past 24 months.