Early last year I posted a piece on the percentage of house sales that were cash transactions – see Cash is King – more than ever.
In that blog post I reported how more properties were purchased for cash in 2011 than in any previous year — an unprecedented 1 in 4 houses being purchased for cash. I also presented a table showing the percentages of cash sales over the previous ten years.
Today cash sales are at an even higher percentage. Would you believe more than 30 percent for 2013 so far? [See the updated the table below.]
Many of the reasons I outlined in the Cash is King post are still valid today, but a big reason we’re seeing more cash transactions has to do with the competitiveness of the marketplace right now. With multiple buyers making offers on the same property being a frequent occurrence today, buyers are striving to make their offer the most appealing to the seller. One of the ways buyers are doing that is by making all cash offers. Compared to offers that entail some sort of financing, cash offers allow for quicker close times as well as waiving of the appraisal. Waiving the appraisal can be particularly appealing to a seller if the multiple-buyer bidding has resulted in an offer price that may be higher than the current appraised value.
Until the market shifts from an extreme Seller’s Market I expect the number of cash offers to continue to increase.
| units sold | for cash | % cash sales | |
|---|---|---|---|
| 2013* | 3,124 | 961 | 30.8% |
| 2012 | 6,098 | 1,695 | 27.8% |
| 2011 | 5,924 | 1,552 | 26.2% |
| 2010 | 5,359 | 1,130 | 21.1% |
| 2009 | 5,260 | 919 | 17.5% |
| 2008 | 3,591 | 454 | 12.6% |
| 2007 | 3,365 | 262 | 7.8% |
| 2006 | 4,111 | 248 | 6.0% |
| 2005 | 6,072 | 366 | 6.0% |
| 2004 | 5,753 | 497 | 8.6% |
| 2003 | 4,448 | 452 | 10.2% |
| 2002 | 4,909 | 429 | 8.7% |
* partial year
On a somewhat related note, often my clients rhetorically ask, “Where are all these cash buyers getting their cash?” Though I don’t have an answer for that question, I read an interesting piece from The Wall Street Journal today reporting on how more people are utilizing margin loans (loans backed by a borrower’s investments) in order to win bidding wars for houses. It’s an interesting strategy. See the WSJ story here: Using a Margin Loan to Buy a Home
Sully
I think we’re nearing the peak of the cash buyers over paying. I did notice a strong presence in the first half but am now seeing fewer people willing to bid up already overpriced listings. However, that would depend on how many more Californians join the buyers ranks, as prices here are still cheap compared to Bay Area. Personally, I quit looking and will wait until things settle down a bit and if it doesn’t then I’ll just stay put!
Guy Johnson
According to a recent report by RealtyTrac, on a statewide basis, 58% of Nevada’s sales in June were made in all-cash. Nevada leads the country in this regard. See the story here: Housing markets where cash is king
Btw, Florida comes in 2nd with 57%.
BanteringBear
These cash purchases are largely hedge funds and speculators. Not a sign of a healthy market, but instead a severely distorted one.
lurker
Bear,
Prove it.
Reno Investor
The question: Where does the cash come from? Answer: Most of the cash has been pulled from the Bond and Equity markets during the downturn. Investors interested in diversification of assets or antsy about markets they cannot control have opted for real estate. They want something the can touch and manage outside the control of others. We have spent the last 4 years buying Reno assets for cash that we took from California investments and other asset classes. Most “speculators” and hedge funds have metrics. We look at historic pricing of the asset, current cash flow, potential cash flow and cap rate for the basis of our selection of properties. We also try to diversify somewhat. This makes for a stable not unstable market. Flippers are another story.
bob_c
blackrock bought 26,000 singly family homes last year as rentals and has packaged RBMS (rental backed mortgage securities) graded A+ by Moodys as something the real estate believers might want to invest in heavily.
bob_c
http://www.dailyfinance.com/2013/02/20/rental-backed-securites-wall-street-foreclosed-homes/
Guy Johnson
Reno Investor, thank you for your comment and insight.
BanteringBear
“We look at historic pricing of the asset, current cash flow, potential cash flow and cap rate for the basis of our selection of properties.”
Some more obvious questions the grazers might want to find answers for:
Why are there more cash investors now than at any other time in the history of the local market, and why am I competing with the herd?
Why are we buying at prices which are well above historic norms as they pertain to local wages?
Why is this considered such a great investment when, historically, it is not?
Baaaaaaaaaaahhhhhhhh, what T F am I doing?
Reno Investor
Bear,
I think you are missing the point. Many investors felt used by Wall Street in the downturn. The advice to buy and hold stocks led to a sinking feeling as they watched assets shrink with no power to do anything about it. Many rushed to gold running up the gold price. Others went to real estate because they felt that assets were historically cheap relative other assets and they could create something with intrinsic value that would provide a relatively steady cash flow. Blackrock ain’t no dummy either, they just did what the little guys started in a bigger way.
Sully
Here is an interesting article pertaining to cash buyers:
http://www.doctorhousingbubble.com/all-cash-buyers-us-housing-market-real-estate-figures-real-estate-investors-percent-of-market/
Guy Johnson
Thanks for the link, Sully.
bob_c
my point was that real got cheap and all cash stepped in. now its getting frothy and risky…..blackrock is selling its stake by offloading these rental backed assets sold as an instrument similar to MBS. blackrock doesn’t want to hold this real estate…it wants to offload it anyone that will buy the paper.
bob_c
large investor buys lots of rentals……packages them and prices them to yield 4% (whatever market will pay) and off sells this product.,,,,thus locking in their gains on the appreciation and shipping the risk to possibly an investor who really doesn’t know what they are holding. they are holding paper backed by a rental agreement and the underlying structure.
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