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Investments / Lending

RealtyTrac: Cash purchases disappearing from home sales

Institutional investors keep cooling down

money house

All-cash sales made up 37.9% of the single-family property sales in the second quarter of 2014, a fall from 42% in the first quarter, which marked a three-year high for cash sales.

But cash sales in the second quarter of 2014 were still above 2013’s second quarter, when 35.7% of all sales were in cash, according to the Q2 2014 U.S. Institutional Investor & Cash Sales Report from RealtyTrac.

While the cash sales decline is moderate, the share of those sales from institutional investors, entities that purchase at least 10 properties in a calendar year, fell in the second quarter to 4.7%, which marks the lowest level since the first quarter of 2012.

“The flurry of purchases by institutional investors and other cash buyers that kicked off two years ago when U.S. home prices hit bottom is finally showing signs of subsiding,” said Daren Blomquist, RealtyTrac vice president, noting that the U.S. median home prices bottomed out in March 2012.

“Over the past 10 quarters cash sales have accounted for 39% of all home sales on average, and institutional investor purchases have accounted for 5.3% of all home sales on average,” Bloomquist added.

“Prior to that, from 2001 to 2011, the average quarterly cash share was 30%, and the average quarterly institutional investor share was 2.6%. This is a classic good news/bad news scenario for the housing market.”

According to RealtyTrac’s report, cash sales account for larger share of very high-end, low-end and distressed sales. The report shows that U.S. cash sales hit a recent peak of 45.8% of all home sales in the first quarter of 2012, when home prices bottomed out, but were down to as low as 34% of all sales in the third quarter of 2013 before jumping to 36.6% in the fourth quarter.

That was on the heels of the rise in interest rates and then the share of cash sales jumped again to 42% of all sales in the first quarter of 2014, when new qualified mortgage rules from the Consumer Financial Protection Bureau took effect.

“The good news is that fewer cash buyers should help loosen up inventory of homes for sale and reduce competitive bidding, giving first time homebuyers and other non-cash buyers more opportunities,” Bloomquist said. “The bad news is that some of those first time homebuyers and other non-cash buyers may already be priced out of the market thanks to the rapid run-up in home prices over the past two years in many areas.”

Cash sales in the second quarter were skewed higher on both ends of the home price spectrum. Cash sales accounted for 67% of purchases of homes selling for $100,000 or less, and cash sales accounted for 45% of purchases of homes selling for more than $2 million.

Cash sales represented a larger share of distressed sales, with 49% of bank-owned sales, 61% of sales of properties in the foreclosure process, and 96% of sales at the foreclosure auction. By comparison, non-distressed home sales were 36% all-cash.

Among metropolitan statistical areas with a population of at least 500,000, those with the top six highest percentages of cash sales were all in Florida: Miami-Fort Lauderdale-Pompano Beach (64.1%), Cape Coral-Fort Myers (62.1%), Sarasota-Bradenton-Venice (61.5%), Tampa-St. Petersburg-Clearwater (54.6%), Lakeland (53.0%), and Orlando-Kissimmee (52.2%). All six metros posted a lower all-cash share of sales than the previous quarter and a year ago.

Other major metro areas with an all-cash share among the top 20 highest nationwide were Las Vegas (50.7%), New York (48.2%), Detroit (47.7%), Kansas City (46.8%), Philadelphia (45.1%), and Cleveland (45.1%).

Among metropolitan statistical areas with a population of at least 500,000, those with the highest share of institutional investor purchases in the second quarter were Atlanta-Sandy Springs-Marietta (15.6%), Las Vegas-Paradise (14.4%), Jacksonville, Fla., (12.5%), Memphis, Tenn. (12%), and Charlotte-Gastonia-Concord (11.3%).

Although Atlanta documented the highest share of institutional investor sales in the second quarter, its 15.6% share was down from a 20.6% share in the first quarter and a 16.5% share in the second quarter of 2013 — following nine consecutive quarters with year-over-year increases in Atlanta’s institutional investor share.

The institutional investor share of home purchases were also down from a year ago in Memphis and Charlotte, but increased from a year ago in Las Vegas and Jacksonville, bucking the national trend.

Other metro areas among the top 10 for institutional investor share with increases from a year ago were Knoxville, Tenn., (10% compared to 6.9% a year ago); Columbus, Ohio (9.2% compared to 6.9% a year ago); and Miami (8.2% compared to 6.7% a year ago).

The report shows that the second quarter share of institutional investor purchases was the lowest since the first quarter of 2012, when they represented 4.6% of all U.S. home sales. The peak in institutional investor share of all sales was 6% in the first quarter of 2013.

In the second quarter institutional investors purchased homes at an average sale price of $147,017, while the average estimated full market value of the homes purchased was $164,553 at the time of the sale.

The majority of purchases made by institutional investors in the second quarter were all-cash (79%) and not in any stage of foreclosure or bank-owned (80%). Of the remaining 20%, 7% were bank-owned, 11% were scheduled for a foreclosure auction, and 2% were in default with no foreclosure auction date set.

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