An interesting piece in USA TODAY echoes some recent observations I’ve heard from agents in our local market – namely that investors are beginning to leave the Reno-Sparks market as prices have increased so dramatically over the past year. Indeed, with sales prices having gained nearly 39 percent throughout 2012, returns on recent rental home purchases must be falling if rents are not keeping pace. …and I have not heard that rents have gone up 39 percent.
The USA TODAY story, As prices rise, rental home investors seek new markets, reports that…
Rapid price increases are forcing real estate investors to shift their focus, and money, to new markets as they scramble to buy more homes to rent. …Phoenix, which has led the nation with rapid home-price gains, is among the first markets to see investors’ interest cool.
Upon reading the piece I asked how can we tell if this phenomenon is occurring in the Reno-Sparks market. A “quick and dirty” way to possibly get an idea would be to take a look at the proportion of cash purchases. The thought being that investors tend to purchase with all cash (as opposed to financing), more often that owner-occupant purchaser do. I realize that this is not an exact method, but given the MLS data at my disposal I didn’t have many options. At the very least I might uncover a revealing trend.
Readers may recall that last February I posted a blog post entitled Cash is King — more than ever. In that piece I showed the dramatic rise in the proportion of cash purchases over the past few years (see the table in that blog post). Specifically how the proportion of cash purchases went from a low of 6 percent in 2006 to more than 26 percent in 2011.
On the surface it appears that 2012 continued that trend — with cash sales accounting for a 27.8 percent share of all house sales for the year. However, if we dig a little deeper, and look at the numbers by quarter, we begin to see a downward trend forming (see the table below).
|2012||units sold||for cash||% cash sales|
Could it be that the number of cash sales has reached its peaked? And, if so, is this an indicator that the investors are beginning to move on from the Reno-Sparks market?
This is an interesting metric that I’ll be watching throughout the year. I’ll keep you posted.