News

In 9% of U.S. markets, an all-cash sale costs more

2016-04-28

IRVINE, Calif. – April 28, 2016 – All-cash buyers of single-family homes and condos nationally paid 23 percent less per square foot than all homebuyers – but cash buyers in 9 percent of local housing markets paid a premium price per square foot, according to RealtyTrac's Q1 2016 U.S. Cash & Institutional Investor Housing Market Report.

In Florida, Naples made RealtyTrac's top five list of local markets where cash buyers paid more for a home than buyers who took out a mortgage – an average 3.9 percent more. In addition, Cape Coral-Fort Myers ranked eighth nationally with cash buyers paying 1.5 percent more.

"While large institutional investors and other cash buyers continue to shrink as a share of U.S. home sales, these buyers still typically beat out traditional buyers using financing – in some cases even when they submit a lower offer for a home," says Daren Blomquist, senior vice president at RealtyTrac.

Blomquist says that cash buyers often focus on properties in poor condition, which is another reason the average cash sale tends to be lower than other property sales.

"Markets where we see the opposite – with cash buyers actually paying a premium price per square foot – could be in danger of overheating," Blomquist adds. "In most markets, cash buyers act as an anchor for home values, but in these exceptions to the rule, cash buyers are acting as an oversized sail, catching more wind and pushing home price appreciation to a potentially precarious pace."

In the South Florida market, however, cash buyers continued to enjoy discounted prices compared to other buyers.

"Due to a loosening of credit with more loan options, low interest rates, along with an increase in first home buyers, the share of cash sales dropped 10 percent in each of our three South Florida counties year over year," says Mike Pappas, president and CEO at The Keyes Company in South Florida. "Even though the investor market has also diminished, cash investors are able to secure a 20 percent discount in purchase price over a traditional buyer in Broward County and a 15 percent discount in Palm Beach County, while the cash buyer discount in Miami-Dade County is at 5 percent."

Nationwide all-cash buyers purchased single family homes and condos for a median $91 a square foot in the first quarter of 2016, a discount of 23 percent below the median $118 per square foot for all home purchases.

Markets with biggest cash buyer discounts

Among 99 metropolitan statistical areas with at least 1,000 single family home and condo sales in the first quarter of 2016 with sufficient home price and loan data, cash buyers realized the biggest discounts in:

  • Baltimore (58.2 percent discount)
  • Harrisburg, Pennsylvania (52.0 percent discount)
  • Akron, Ohio (50.2 percent discount)
  • Birmingham, Alabama (49.3 percent discount)
  • Columbia, South Carolina (48.3 percent discount).
  • Cleveland, Ohio (47.4 percent discount)
  • Memphis, Tennessee (43.7 percent discount)

Markets where cash buyers paid a premium

  • Honolulu (6.6 percent premium)
  • Seattle (5.2 percent premium)
  • San Francisco (4.8 percent premium)
  • Naples, Florida (3.9 percent premium)
  • San Diego (2.5 percent premium)
  • San Jose, California (2.2 percent premium)
  • Los Angeles (2.2 percent premium
  • Cape Coral-Fort Myers, Florida (1.5 percent premium)
  • Oxnard-Thousand Oaks-Ventura, California (0.2 percent premium)

Institutional investors

Institutional investors – entities that purchase at least 10 single family homes and condos in a calendar year – accounted for 2.6 percent of all single family home and condo sales in the first quarter, down from 4.0 percent in the previous quarter and down from 3.4 year-to-year. The first-quarter drop was the 11th consecutive quarter where the institutional investor share of sales decreased on a year-over-year basis.

The share of institutional investor home purchases in the first quarter of 2016 decreased from a year ago in 87 of the 110 metro areas (78 percent)

Markets with highest share of institutional investors

  • Birmingham, Alabama (9.9 percent sold to institutional investors)
  • Augusta, Georgia (7.4 percent)
  • Memphis, Tennessee (7.0 percent)
  • York-Hanover, Pennsylvania (6.9 percent)
  • Atlanta (6.7 percent)

Biggest year-over-year increases in institutional investors

  • Birmingham, Alabama (up 582 percent)
  • Knoxville, Tennessee (up 98 percent)
  • Crestview-Fort Walton Beach, Florida (up 94 percent)
  • Pittsburgh, Pennsylvania (up 85 percent)
  • Albuquerque, New Mexico (up 84 percent)

© 2016 Florida Realtors®

Reprinted with permission. Florida Realtors®. All rights reserved.

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