Posted at 4:20 PM on August 26, 2010
by Paul Tosto
Filed under: Housing & mortgages
Back in February, we highlighted a chunk of north Minneapolis where cash deals for homes were off the roof.
Data showed nearly two of every three transactions in that area were cash deals in 2009, an astronomical pace compared to 2005 and 2006 when cash deals accounted for less than six percent of sales.
There's no doubt the mortgage crisis, accelerated by the recession, triggered the troubles of homeowners that led to a jump in cash deals in selected places, like MLS Area 305 in north Minneapolis.
But what's the picture nationally?
We checked in with the National Association of Realtors, which began collecting monthly statistics on cash transactions in October 2008. Here's the NAR data in chart form showing the percentage of home sales that were cash transactions (click on the chart for a larger view).
All-cash deals are obviously up in the recession, although it's still hard to tell exactly how much of it is driven by the mortgage and foreclosure crisis.
From 2000 to 2007, NAR's annual survey showed all-cash transactions made up seven to eight percent of sales, but investors appeared to be under represented in those survey results so it's not an apples-to-apples comparison, said NAR's Walter Moloney.
The data, he adds, don't show an absolute link between all-cash deals for homes and distressed real estate markets.
All-cash deals, he said, include many people who are not in stressed situations. Those include "trade-down buyers," retirees and traditional buyers who sell their property and buy a smaller home. It also includes parents helping children and international buyers.
In 2009, investors accounted for 17 percent of transactions -- it's been averaging close to that so far this year, Moloney adds.
Those are the folks, for the most part, buying stressed real estate for cash.
Are we saying cash sales are bad? No.
But the question we asked in January is still relevant: Can the interests of investors with cash to spend co-exist with the policy goals of putting people in their first home and stabilizing neighborhoods?
"Investor competition is a main challenge in bringing foreclosed properties on the market to homeowners," Thomas Streitz, director of housing policy and development for Minneapolis, told a U.S. House subcommittee earlier this year.
The city, he wrote, is trying to prevent the turnover of single family homes to rentals but sellers are taking lower cash offers over the higher offers of developers working with the city's Neighborhood Stabilization Program.
"A homeowner with a FHA approved mortgage with a 30 day approval time does not compete with cash-in-hand private investors."
More concerns surfaced in the most recent NAR Confidence reports. The reports include Realtor responses from surveys of market conditions.
"Buyers primarily paying cash due to inability to get mortgages," one Realtor commented in NAR's June report.
"Serious challenges in getting owner occupants into foreclosed properties due to issues with repairs and financing. The result is most foreclosures will sell low to cash investors many out of state who become slum lords," another Realtor said in the March Confidence Index.
Here's one more from March:
Competition for properties for first time home buyers has been extremely difficult due in part to the $8000 tax credit. Unfortunately for them, many new investors are also taking advantage of the low prices by moving money out of poorly performing investment accounts and buying properties cash.
Naturally, those investors are having much more success having their offers accepted.
What are you seeing when it comes to cash sales and homes? Post below or drop us a line and share an insight.