OfflineIt’s interesting to see the different tone in the media and from analysts about cash sales to real estate investors now that the market is improving and buyers are returning to the market. During the deepest troughs in markets from 2008 into 2012, the cash investor buyer was hailed as the saviour of real estate by helping to reduce foreclosure inventories and stabilize severely damaged markets.
However, now that things are beginning to improve and buyers are returning to the market, there’s a different slant on some of the coverage of cash sales and investor purchases. Fairness to retail buyers is the topic of the day. Because there are still deals for investors due to higher rents, they’re bidding aggressively against the single family home retail buyer. Even if they aren’t directly competing on individual properties, cash buyers are still in the mix and reducing inventories.
Reduced inventories create rising prices, and the individual retail buyers are having to deal with price increases on fewer properties. Some consumer advocates are calling for an end to foreclosure auctions by FHA, Fannie and Freddie, and a “first-look” policy to allow owner occupants and retail individual buyers a shot at desirable properties investors are scooping up.
The situation is a classic free market response. Even as some are complaining about unfair competition from cash buyers, others are nervous to see the number of cash sales receding in most markets. The higher prices also influence cash buyer decisions, and they are buying fewer properties. If they continue to reduce their purchases, many analysts say that the market recovery will stall. They point out that the trade-up and first-time buyers are not going to appear to take up the slack.
The cash share of sales fell to 39 percent in May, and has been down on a year-to-year basis for 19 months. Negative sentiment about decreasing cash sales is based on their contributions to market recovery:
● Cash sales helped to provide a bottom for the market in 2009.
● Price declines nationwide would have been a lot worse if cash buyers had not stepped in to buy up inventory.
● Even as the market is improving, prices are rising faster and more homes are coming out of underwater mortgage status due to the influence of cash sales.
It is anybody’s guess where prices are going and how fast they’re going to move, but this seesaw of cash and retail buying can continue for a while.
This is a very good article.
I agree with your points on cash buyers helping to stabilize the market. I am also in agreement with the assessment for declining cash buyers and the comparison to the first-time-buyers not being able to cover the gap with rising property inventory prices from this point forward. Higher price properties can definitely play a part in slowing down the market recovery. Many opportunities for savvy investors that keep up with the latest trends in the marketplace.
It will be quite interesting to see how the banks answer the call for new loan policies to better protect their interests and how the banks handle continued reductions of REO inventory.
Stay Focused
Is this the same as what Obama is calling for in the overhaul? See my post here http://www.deangraziosi.com/real-estate-forums/buying-foreclosures-reos-...
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I did my share to help stabilize the housing market by buying foreclosures.... still buying cash
Valerie
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I blanket statement such as "The cash share of sales fell to 39 percent in May, and has been down on a year-to-year basis for 19 months" without an explaination can lead to false conclusions.
Much of the cash sales were on dirt cheap properties that banks would or could not have financed. The secondary mortgage market requires a minimum loan amount of $50,000. During the foreclosure crisis, there were hundreds of thousands of homes that were priced much less than that. If an investor wanted to snap up these awesome deals - they had to pay cash.
With these properties off the market combined with across the board price increases, it is no wonder that cash deals have diminished.
Unfortunately this is an on arguement that will never go away! There will always be somebody who is saying that things are unfair. Cash Buyers play a vital part in the "circle of real estate life". Most properties that Cash Buyers buy are deals that banks haven't and will not lend on. Without Cash Buyers - we would be flooded with run down vacant properties that would attract squatters etc. We "Cash Buyers" are doing the market a "favor" by doing our job and doing it well! Your welcome!!
OMG - I love this industry!
KEEP MOVING FORWARD
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