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Global Economic Intersection Article of the Week
Back in May, I posted an article on Minyanville asserting that all-cash buyers have kept several major housing markets from collapsing. (See All-Cash Buyers Preventing Collapse of Housing Markets.) With new evidence in to support this claim, now is a good time to revisit this important issue and broaden the examination.
In major housing markets such as Las Vegas, Phoenix, and Miami, investors have played a growing role in the past year. In July, Inside Mortgage Finance (or IMF) reported in its monthly Housing Pulse Survey report that 75% of investor purchases nationwide in June were all-cash transactions. These investors focused their attention on what IMF calls "damaged REOs." The June survey revealed that 59% of damaged REO sales were to investors.
In its annual Survey of Vacation and Investment-Home Buyers, the National Association of Realtors reported in March that 59% of all investors surveyed had paid cash for their property in 2010. That was up from only 17% in 2004.
Some analysts have claimed that the growth of all-sale purchases by investors is a positive development for these major housing markets. Are they right? Or is it a sign that "normal" home sales by owners with equity in the property is relentlessly shrinking?
All-Cash Buying Spreads to Other Metros
Recent articles have indicated that all-cash buying is picking up in markets beyond the three I've mentioned. The New England real estate news website, Banker & Tradesman, reported in mid-August that in the first half of 2011, nearly 37% of all purchases in Massachusetts were all-cash deals. More than 53% of sales in Cambridge were to all-cash buyers as were 50% of purchases in Edgartown and Provincetown as well.
At the end of August, the Herald Tribune reported that nearly 60% of all transactions in the Sarasota, Florida, area were to all-cash buyers. The author told the strange tale of one woman who had recently completed a short sale on her property. Hoping to make up for the loss in selling her home, she plunked down $408,000 in cash on another home with the idea of renting it out for five years while it appreciates in value. She was confident that the bottom had been reached in her market.
Right after Labor Day, I spoke with a San Francisco all-cash investor who had purchased 25 properties in three western states since 2001. Having purchased two of them since early 2010, he was clearly not concerned about falling prices. In our conversation, he pointed out that had he not paid in cash, the properties might be throwing off a tiny positive cash flow. I wonder whether he realizes how much his properties had declined in value since the time of purchase.