All-Cash Purchases and its Effect on First Time Home Buyers


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“In a normal housing market, all-cash sales should be 10% or less” says Lawrence Yun, chief economist at the National Association of Realtors. This projection hasn’t been the case since 2001, a time when cash sales were close to 30%. In the last 10 quarters, cash sales have festered at an average of 39% of all home sales with institutional investor purchases accounting for 5.3%. Grim news, but things are looking up for first time homebuyers and owner occupants in general; according to data from CoreLogic, all-cash sales are the lowest they’ve been in years.

All-cash purchases have declined from an overall 3 year high of 42% in the second quarter of 2014 to 38% at present, reports MarketWatch. This trend is said to continue to fall due to investors growing disinterest in purchasing in the masses and renting these properties out to the public.

“The housing market recovery is transitioning from one that is driven largely by investors and other cash buyers to one that is going to be more reliant on first-time home buyers and other non-cash buyers,” Daren Blomquist, vice president at RealtyTrac says. “The flurry of purchases by institutional investors and other cash buyers that kicked off two years ago when U.S. home prices hit rock bottom is finally showing signs of subsiding.”

Aggressive, strategic investor purchasing as well as Empty Nester downsizing, wealthy Americans and foreign buyers may have been what the housing market needed at the time, but where does that leave those ready to buy now?

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“First-time buyers should face less competition from cash buyers and have a better chance of actually purchasing a home,” Yun says. “However, it’s somewhat dangerous days for the overall housing market because it’s hard to say whether the regular owner-occupant buyers will be able to step in and continue the momentum that has been gained over the past two years.”

Owner Occupant buyers have fairly large shoes to fill. In the last two years, 27 of the top 30 metro market areas have been dominated by all cash purchases. In three of the aforementioned markets, over 80% of properties, pricing below $100,000, were all paid for with cash. Miami led the way with 84.7% comprehensive cash buys with Detroit and Tampa in close second.

Three of those in the top 30 metro market areas with the lowest number of cash deal properties in the first quarter encompass Virginia Beach at 17.4%, Denver at 22.4% and Portland at 22.9 according to Zillow.

Prices driven up by institutional investors and other all-cash buyers have directly affected potential buyers, perhaps, priced out of a market that they are just starting to be able to afford to join.

See Interesting Loop Hole Found In Housing Inventory

Market Watch “Percentage of all-cash home sales falls” 19 August 2014

HousingWire “RealtyTrac: Cash purchases disappearing from home sales” 19 August 2014

DS News “Cash Sales Decline; Still Dominate Lower-Priced Homes” 19 August 2014

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