THIS IS A TALE OF TWO cities or 20, and two lives or 200 or 20,000 — all homeowners with distinct opportunities to take equity from their homes, and, so far at least, find advantageous outcomes. Some are spectacular.
As it turns out, these homeowners have become part of an unanticipated and unpredictable residential real estate phenomenon now assigned a colorful appellation: the “cash-out market.”
Christopher Caneles, retired from a management career in media, and his partner, Steve Nesbitt, bought a house near the Intracoastal Waterway in West Palm Beach for $1.65 million less than four years ago. Recently, he said, “We listed for just shy of three times what we paid and sold it the second day in a cash offer. It didn’t even make the MLS.”
Sales price: $4.995 million.
Barbara Sadie German, known by her middle name to the broad audience she serves across Southwest Florida as a morning co-host of “Logan & Sadie” on WINK FM-96.9 radio, hated apart- ment living when she moved to Fort Myers seven years ago. So she found a “beautiful, awkward, lovely old home I named Mermaid Manor” in the historic neighborhoods along the Caloosahatchee River in east Fort Myers, she says.
The 1953 home needed upgrades, which she was doing comfortably until she had an unwanted visitor in 2017: Hurricane Irma. “It destroyed the piping system, busted the widows and caused internal damage,” she recalls — and a FEMA loan plus insurance didn’t come close to covering the destruction. So she went into debt.
Then along came the cash-out market, to her surprise and everybody else’s — and it happened just as COVID sliced into American life, hitting hers and a lot of other people’s incomes.
And so, in a neighborhood now “gentrifying,” as she describes it — there are new homes, thorough restorations, and economically more muscular neighbors — she bought the home for $127,500 in 2015 and sold the home for $265,000 and moved into a “cute townhouse” in south Fort Myers.
She’s debt-free, she can pay her bills, and she bought her folks in Tennessee, where she was born and raised, a washer and dryer.
That’s the cash-out market in a nutshell, although those stories in bare outline miss the complexities people may experience.
Draped across southern Florida like an almost magic economic veil, the cash-out market is popping with homeowners who decide the equity in their homes has jumped precipitously and they have two courses of action, says Randy Thibault, founder and CEO of LSI Companies based in Fort Myers, a widely respected residential and commercial real estate expert.
They can either sell their homes and literally cash out, an option that comes with the significant challenge of finding another good place to live; or they can pull the equity out of their home in a bank loan.
“So there are two phenomena,” Mr. Thibault explains.
In one case it could go like this. “Let’s say the value of your house has jumped $100,000. You want to tap into that because it’s almost like free money. So you do. And the banks are eager to process those equity loans because of the fee generation it creates for lending departments.”
Interest rates remain low, sure. But it’s not free money. How it’s used could make a significant difference, he cautions.
“The problem could be, people take the equity out of theirs homes, maybe spend it on boats or RVs or something, and then when the market adjusts or equalizes, some of those people could have homes going down in value. So now their value may be upside down.”
That’s one thing, but the other is the good sale, followed by a question: Where to go?
Mr. Thibault doesn’t describe this current, unprecedented market condition as “cash out.”
Instead, he says, “I call it the New Homeless. Let’s say your house worth $300,000 is now selling for $500,000. So you cash out, put money in the bank or use it to do whatever, and now the problem is: Where am I going to live? A lot of people want to take the cash and wait to buy again until the market subsides.”
Result? “A huge demand in rental properties and homes to rent,” he says. And those prices are rising like a space shuttle.
Other experts pretty much agree.
“We’re in unprecedented times. We’ve experienced levels of appreciation in housing we haven’t seen since the run-up before 2005, when prices went up until 2007,” says Budge Huskey, president and CEO of Premier Sotheby’s International Realty, in Naples.
But sharply rising prices is as far as the comparison goes with the period just before the Great Recession, he says.
“This is not 2005 and 2006 — this is real money, real demand, responsible lending standards. There’s not anything on the horizon, at least not related to COVID or something like it, that could make that happen again now.”
Now, the market looks stable and even likely to continue rising for some time, say he and other experts.
High demand, low inventory — “That’s led to record home equities and it’s great but it’s illiquid wealth,” Mr. Huskey explains. “So what do people really want to do with the opportunity? Now they have choices they didn’t have before.”
They can draw wealth out of their homes in equity loans, or they can sell their homes for cash and harvest significant profits based on what they paid originally and may owe now — or, he points out, they can remain in place and take no action.
Most choose option three — to go nowhere and not to sell, Mr. Huskey says. And that affects inventory, the big engine in this smoking-hot seller’s market. There’s not enough to satisfy the demand. So prices go up.
“Staying in place represents the vast majority of people, and the reason why in seemingly every market, inventories are one month or less, despite the fact there has never been a better time to sell your home,” Mr. Huskey explains.
“But the vast majority of people aren’t.”
Where are they going to go, especially if they want to stay in the same market, he wonders? And that’s often the case with people who arrived here from somewhere else.
Low inventory creates some extraordinary opportunities, not only for sellers, but for Realtors who can demonstrate how much potential exists in current sales for homeowners with some flexibility.
“Despite the fact that inventory has been low this calendar year, our agents have been able to dig up listings from people who decided to take their profits and go out of state — maybe back up north to be close to the grandkids, or to Georgia or North Carolina,” says Phil Wood, CEO and president of John R. Wood Properties, based in Naples.
“They lose living in paradise, but they’re willing to forgo that to take advantage of this market. Our written sales this year are over $5 billion — and that’s without inventory.”
The market shows no signs of slowing down, in his estimation.
“I’m not seeing any let up. It’s very difficult to predict. All of our agents still have 10 buyers in their pockets if we can find something.”
Where do people go when they do sell, however — especially if they want to stay in Florida?
“People either go inland or up the coast — to Punta Gorda, to North Port, to Port Charlotte,” Mr. Wood says. “It’s a whole lot cheaper. Some people go inland. They might live in Ave Maria and commute to Miami.”
And some who have been in Naples a long time, miss it. “They might say, ‘I miss Naples the way it was 20 or 25 years ago,’” Mr. Wood explains.
“Well, Punta Gorda to me is so similar to the way Naples used to be. So there are alternatives. But good alternatives.”
Meanwhile, activity in the residential market is popping like corn in hot oil.
“In central Naples, I can drive through neighborhoods west of 41 — and this is the case east of 41, too, in some places — and count 50 homes under construction on infill projects, in old communities built in the ’60s or ’70s,” says Mr. Huskey.
“You see these homes, one or two per street that haven’t been touched since they were bought 30 years ago. Their owners are seeing mansions going up, and getting offers every day from builders or buyers, whoever, and they’re saying, ‘We paid $60,000 30 years ago and somebody wants to pay me $2 (million) or $3 million.”
And if they sell, they have to go somewhere. That becomes the next adventure.
Tale of two lives
In the case of Mr. Caneles and his partner in West Palm Beach who sold their two-story home for almost three times the price they paid in 2018, the couple bought a home with 4,700 square feet and only a single story for about half the cash-out benefit, which was near $5 million.
In their 60s now, doing away with stairs seemed like a good idea for them, Mr. Caneles acknowledged, in part because it gives them a chance to “age in place,” if they choose to in a decade or so.
Located in The Club at Ibis, a golf course community 14 miles from downtown, the neighborhood required them to sacrifice proximity to the beach and trade a four-mile jaunt to downtown for a nearly half-hour journey.
They like it, a lot. “We bought a golf cart, even though we’re not golfers. So far, so good,” Mr. Caneles says.
“We joined the club with all the social benefits except golf and I lived in a gated community in California, so I’m used to it. The rules and regulations will be fine.”
As for the money they made on the sale, “We’ll invest,” Mr. Caneles says. And after a moment’s pause, he laughs. “And we’ll spend some of it.”
Ms. German, meanwhile, has a weight off her back, she says.
Now, she’s debt-free, though renting the townhouse. Her two beloved dogs no longer have a huge backyard in which to roam — so she takes them for walks every day.
And she can share her experience with a little cautionary advice.
“The cautionary tale, if somebody wants to do this, is consider where you’ll go. I thought about putting my house on the market in April, and I went around looking for different apartment complexes.
“My Realtor said, ‘What’s your plan?’
“I said, ‘I want to live worry free.’”
She had a price she could afford in mind, but by the time the house was under contract in late June, rents had climbed $200, she recalls. She had to be out of the house before it closed, so for a brief period, a month or two, she was paying both the mortgage on the house and rent on the new place — and none of that was fun.
“I was freaking out,” she admits. Who wouldn’t be?
And getting the new place was an uncomfortable experience. She’d identified it, but the day it came up for rent, she was one of several who wanted it.
“It was a matter of who got the application in first,” she says. She won that race.
She finally sold her house in August, and now the ball-and-chain debt with its attendant worry are no longer part of her life.
And if the market settles sometime, she might consider becoming a homeowner again, she says.
Mr. Thibault at LSI Companies has heard similar stories many times, and survived and thrived in different markets ranging from pre-recession to post-COVID, or as close as we can get to that these days.
His advice is simple, and it sounds like it came from your parents, or somebody with your best interests in mind.
“I would caution people: In the current market uptick, if you cash out, make the decision with prudent thought. Be very careful not just to take the cash and spend that money for consumer goods.” ¦
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