Cash-only Home Sales Declining But Still One-Third of Transactions
Although all-cash sales of homes aren’t as prevalent now as they were during the housing crisis, they still account for one-third of all home sales, according to CoreLogic.
Yuliya “Julie” Sidorevskaya, a real estate broker in Miami, says there are still plenty of buyers with cash willing to purchase. But there’s a lack of available homes for them to buy.
“They’re all just sitting on the sidelines. They have cash sitting there, but I can’t get them inventory,” Sidorevskaya says.
For the first three months of this year, the cash sales share averaged 34.7 percent, the lowest start of the year since 2008, according to the report released by CoreLogic on June 23.
Cash sales peaked in January 2011, when those transactions accounted for 46.6 percent of total home sales nationally, according to CoreLogic. In March 2016, cash sales accounted for 33 percent of total home sales, down 2.4 percentage points year-over-year. Before the housing crisis, cash sales averaged about 25 percent of national home sales, CoreLogic says.
Among all-cash transactions in March, the largest chunk were for real estate-owned (REO) properties at 57.2 percent, followed by resales at 32.9 percent, short sales at 30.6 percent, and newly constructed homes at 14.4 percent.
However, REO sales accounted for only 6.8 percent of total national sales in March. That figure was 23.9 percent in 2011, when the percentage of overall cash sales was at its peak. Typically, resales comprise the majority of home sales, so they have the biggest impact on the total cash sales share, CoreLogic says. In March, resales accounted for about 80 percent of transactions.
Where Cash Is King
Of the nation’s 100 largest metropolitan areas by population, Philadelphia had the highest cash sales share at 55.7 percent in March, according to CoreLogic.
Real estate experts can’t point to one factor driving cash transactions in that city more than other distressed housing markets, according to local news site the Philly Voice.
The other metropolitan areas in CoreLogic’s “top five” areas for cash sales are all in Florida: the West Palm Beach area, including Boca Raton and Delray Beach (54.4 percent); Cape Coral and Fort Myers (52.6 percent); the region that includes North Port, Sarasota, and Brandenton (51.6 percent); and the area of Miami, Miami Beach, and Kendall (51.4 percent).
“There has always been an influx of cash,” including from international buyers and retirees, Sidorevskaya says about the markets in Florida.
Cash homebuyers often have a competitive edge against other buyers, and they can typically pay lower amounts than leveraged purchasers. But that doesn’t mean buying a home is the best investment for everyone with piles of cash.
“Typically, wrapping up a lot of cash into real estate, which is relatively illiquid and has high transaction costs, has been a deterrent for investors at higher price points,” Steve Hovland, director of research for online real estate investment management firm HomeUnion, says.
Now that the return on stocks, commodities, and bonds may be more turbulent this year, there’s been a fundamental shift in acceptable prices that cash-wielding investors are willing to pay for properties, Hovland says.
The median price for all-cash investment home sales surged to $181,000 in April, a 19.3 percent jump year-over-year, according to HomeUnion’s data of investment homes and owner-occupied houses in 31 ZIP codes in the U.S.
Meanwhile the median price of leveraged investment home sales increased 4.3 percent in April year-over-year to $233,200, says HomeUnion.
Sidorevskaya’s business, Julie’s Realty, has focused on real estate-owned sales, and she was approved as a Fannie Mae broker in 2011. When home prices were lower and inventory was larger, many cash buyers were looking for investment properties.
Lately, Sidorevskaya says, she still fields about five phone calls each day from small-time investors and hedge funds looking for properties in the $500,000 range. She says their goals include flipping homes and buying fixer-uppers to rent out.
She says Miami has always been a “very hot” market, with its mix of cultures, climate, and ocean views. But in Miami, like many areas of the country, the demand for housing is greater than the supply. In general, a “normal” supply of homes would sell in about six months without new inventory, according to economists. According to the most recent data from the National Association of Realtors® for May, it’s taking 4.7 months for existing homes to sell.
Until builders construct more homes and more properties are put up for sale, many cash buyers in Miami may wait for inventory or look into other real estate markets.
“Buyers have no choice but to go after whatever is on the market. Right now, they don’t have a choice because there’s not much to choose from,” Sidorevskaya says.