Dwindling Competition for Home Buyers?

August 19, 2014

After a three-year high, cash sales may finally be showing signs of receding, though the drop is still moderate. However, some housing experts say this could be a sign of less competition for home buyers who have been continually outbid for homes from all-cash buyers and institutional investors.

All-cash sales in real estate purchases dropped from 42 percent in the first quarter to 37.9 percent in the second quarter of this year, according to RealtyTrac’s second-quarter 2014 U.S. Institutional Investor & Cash Sales Report. Still, cash sales remain above year-ago levels, when they were at 35.7 percent.

The share of sales from institutional investors — those who purchase at least 10 properties in a calendar year — also dropped in the second quarter to 4.7 percent. That marks the lowest level since the first quarter of 2012, when institutional investors represented 4.6 percent of all sales, RealtyTrac reports.

“The flurry of purchases by institutional investors and other cash buyers that kicked off two years ago when U.S. home prices hit bottom is finally showing signs of subsiding,” says Daren Blomquist, vice president of RealtyTrac. “Over the past 10 quarters, cash sales have accounted for 39 percent of all home sales on average, and institutional investor purchases have accounted for 5.3 percent of all home sales on average. Prior to that, from 2001 to 2011, the average quarterly cash share was 30 percent, and the average quarterly institutional investor share was 2.6 percent. This is a classic good news/bad news scenario for the housing market.”

The good news is that having fewer cash buyers in the market should “help loosen up inventory of homes for sale and reduce competitive bidding, giving first-time home buyers and other non-cash buyers more opportunities,” Blomquist says. “The bad news is that some of those first-time home buyers and other non-cash buyers may already be priced out of the market thanks to the rapid run-up in home prices over the past two years in many areas.”

In the second quarter, cash sales accounted for 67 percent of purchases of homes selling for $100,000 or less, according to RealtyTrac.

Source: “RealtyTrac: Cash Purchases Disappearing From Home Sales,” HousingWire (Aug. 19, 2014)