Institutional investment in housing drops to 4-year low

Cash sales at 33.9%, institutional down to 4.3%

Institutional investors — entities that purchase at least 10 properties in a calendar year — accounted for just 4.3% of all sales of single family homes and condos in the second quarter, according to RealtyTrac’s third quarter 2014 report.

That’s down from 5% in the previous quarter and down from 5.3% a year ago to the lowest level since the fourth quarter of 2010.

Meanwhile all-cash sales accounted for 33.9% of all sales of single-family homes and condos nationwide in the third quarter, down from 36.9% in the second quarter and unchanged from a year ago.

“Cash sales continue to be an important piece of the real estate puzzle right now, representing one in every three home sales nationwide in the third quarter of 2014 and helping to drive up U.S. median home prices 38% over the last two and half years,” said Daren Blomquist, vice president at RealtyTrac. “As institutional investors and other cash buyers slow down their purchasing in many markets across the country, more traditional buyers — including first-time homebuyers and move-up buyers — will need to increasingly fill in the missing puzzle pieces to maintain the momentum of the housing recovery.

“Institutional investors are still actively purchasing single family rentals, but continue to gravitate toward markets where lower-end inventory is still available,” Blomquist continued. “Meanwhile there has been a recent surge in cash buyers in some markets, often coinciding with either a rebound in distressed sales attracting bargain-hunting cash buyers or a booming job market engendering a competitive bidding environment where cash is king.”

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Among metropolitan statistical areas with a population of at least 500,000, those with the highest share of institutional investor purchases in the third quarter were Memphis, Tenn. (16.4%), Charlotte-Gastonia-Concord, N.C, (14.2%), Columbus, Ohio (12. 6%), Atlanta-Sandy Springs-Marietta, Ga., (12.5%), and Orlando, Fla. (11.0%).

Although Memphis documented the highest share of institutional investor sales in the third quarter, its 16.4% share was down from a 20.3% share a year ago. The institutional investor share of home purchases was also down from a year ago in Atlanta, but increased from a year ago in Charlotte, Columbus and Orlando, bucking the national trend.

Other metro areas among the top 20 for institutional investor share with increases from a year ago were Miami, Fla. (8.6% compared to 6.3% a year ago), Tampa, Fla. (8.6% compared to 7.5% a year ago), Dallas, Texas (8.5% compared to 8.4% a year ago), Kansas City (7.4% compared to 7.0% a year ago), and Knoxville, Tenn. (7.0% compared to 4.5% a year ago).

Among major metro areas, the biggest increases in the share of cash sales were in Houston (36.3% compared to 22.6% a year ago); San Antonio (30.9% compared with 21.1% a year ago), Boston (29.1% compared to 20.7% a year ago), Dallas (30.0% compared to 21.5% a year ago), Indianapolis (29.2% compared to 22.3% a year ago), and Cleveland (45.2% compared to 35.8% a year ago).

The share of cash sales increased from a year ago in 22 states, including Texas (32.4% compared to 21.5% a year ago), Indiana (31.1% compared to 21.7% a year ago), Massachusetts (30.7% compared to 24.0% a year ago), and Connecticut (36.9% compared to 31.8% a year ago.

Cash sales represented a larger share of distressed sales, accounting for 54.6% of distressed sales — sales of homes in the foreclosure process or bank-owned.