All-cash purchases accounted for almost 43% of all sales of residential property in the first quarter of 2014, up from almost 38% in the previous quarter and 19% in the first quarter of 2013, according to data released Thursday from real-estate data firm RealtyTrac. “It’s a surprising thing for us that cash sales have stayed high for so long even though the big hedge fund investors have pulled out of the market a bit,” says Daren Blomquist, vice president at RealtyTrac. “The high percentage of cash sales reveals the soft underbelly of the housing recovery.”
Experts say the high percentage of those paying cash won’t last much longer, though. “Cash buyers will become few and far between,” Blomquist says. So who does have the money to buy a home outright? Wealthy Americans and downsizing empty nesters make some of these all-cash deals, he says. Investors who are eager to make a profit by buying low and renting those properties — or flipping them — also drive up the number of all-cash deals, he adds.
Institutional investors — people or companies that have purchased at least 10 properties in a calendar year — appear to be gradually pulling out of the housing market. Investors accounted for 5.6% of all U.S. residential sales in the first quarter, down from 6.8% in the fourth quarter of 2013 and 7% in the first quarter of 2013. But while the share of institutional investor buyers declined in 18 of the top 20 markets for institutional investors, home prices continued to appreciate in most of those markets, although at a slower pace. “But price appreciation will definitely flatten out,” he adds.
The top five markets for cash sales were in Florida, which experienced one of the biggest property crashes after the 2008 recession: Cape Coral-Fort Myers (74%), Miami (67%), Sarasota (65%), Palm Bay (64%), and Lakeland (62%). Other major metro areas where over half of all property sales were done in cash included New York (57%), Columbia, S.C., (56%), Memphis, Tenn. (55%), Detroit, Mich. (53%), Atlanta (53%) and Las Vegas (52%). Many high-end homes are also purchased with cash and buyers in competitive areas where inventory is low are more likely to offer cash.
Not everyone agrees that the housing market is so reliant on cash. The National Association of Realtors says its data suggests the rate of cash sales is lower and on the decline. All-cash sales comprised 33% of transactions in March versus 35% in February and 30% in March 2013, according to data released last month. Individual investors purchased 17% of homes in March, down from 21% in February and 19% in March 2013, the NAR found. But existing home sales were flat in March, the report found. The pool of potential buyers is limited due to tight lending standards and rising interest rates, experts say.