- RealtyTrac releases report on all-cash deals.
- Report also covers institutional investors.
- Denver and Colorado trail the national average.
All-cash home buyers and institutional investors are playing a smaller role in the Denver-area and Colorado housing markets than almost anywhere else in the country, according to a report released today.
Only four other states and the District of Columbia did all-cash buyers have a smaller percentage of the overall market, according to the report by RealtyTrac.
In Colorado, 22.4 percent of all sales were for cash, compared with a nationwide average of 37.2 percent, RealtyTrac reported.
The only other states with a smaller percentage of the total were Alaska at 18.8 percent; North Dakota, 22 percent; Virginia, 22.2 percent and Wyoming, 20.6 percent.
In the District of Columbia, 21.5 percent of all sales were for cash.
Institutional buyers accounted for 1.7 percent of all sales in Colorado in the second quarter, compared with an average of 4.7 percent nationwide, according to RealtyTrac. RealtyTrac defines institutional buyers as investors that purchased 10 or more properties during the past 12 months.
By price strata, the Denver-area and Colorado trailed the national averages in all ranges except for homes that sold for $2 million or more.
“That trend started in the higher-end, Denver market several years ago and now is the standard mode of operation in order to get the attention of the seller,” said local independent broker Gary Bauer.
Typically, after buying a luxury home with cash, the buyer will put a mortgage on it within 30 to 120 days, he said.
In the Denver-area and Colorado, by price strata, the percentage of all-cash buyers compared with the national averages were:
- Less than $100,000 – 56 percent in Denver and 53 percent in Colorado, compared with 67 percent nationally;
- $100,000-$200,000 – 21 percent in Denver and 20 percent in the state vs. 31 percent nationally;
- $200,000-$400,000 – 21 percent in Denver and 14 percent in the state vs 24 percent nationally;
- $400,000-$1 million – 13 percent in Denver and 18 percent in the state vs 24 percent;
- $1 million to $2 million – 32 percent in the Denver area 24 percent in the state vs 36 percent nationally;
- And $2 million and over – 46 percent in the Denver area and 51 percent in the state, vs 45 percent nationally.
Bauer said he is surprised that Denver and Colorado are trailing the national average for all-cash buyers, although he said he does not have any information to contradict or challenge RealtyTrac’s numbers.
“I find it surprising that the Denver market trails the national market on all cash transactions,” Bauer said.
“I’ve done all sorts of cash transactions in a lot of price ranges and if anything,” Bauer said. “I would have thought we had more cash buyers than the national average,” he said.
Many other brokers he has talked to also report seeing an increasingly large percentage of homes sold in all-cash deals, he said.
“With our lack of inventory, all-cash transactions often gives the buyer an advantage over other bidders,” Bauer said.
In a cash deal, an appraisal is not needed. And the seller doesn’t have to worry about the buyer not qualifying for a loan.
Given how low mortgage rates remain, Bauer and others say buyers often will later get a mortgage in order to invest their money elsewhere with hopes of achieving a higher return.
As far as institutional investors, Bauer said it makes sense they are not as big of a force here as in other parts of the country.
“The government launched a pilot program in which they would take properties owned by Freddie Mac and Fannie Mae and put them in blocks of homes and sold them in bulk to institutional investors,” he said.
“There was talk that Colorado might become one of those states in the pilot program, but it never did,” Bauer said.
Atlanta, Chicago, Phoenix and most of Florida were among the places in the pilot program. Institutional investors as a percentage of all sales surpassed the national average in Arizona, Georgia and Florida, while Illinois was at 4.7 percent, the same as the national average, according to RealtyTrac.
Across the country, institutional sales in the second quarter were down from 5.8 percent in the second quarter of 2013 and down from 5.3 percent in the first quarter.
“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,” said Daren Blomquist, RealtyTrac vice president.
Nationally, the U.S. median home price bottomed out in March 2012, he said.
“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.” Blomquist said.
“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.”
The change represents a mixed bag for consumers, he said.
“This is a classic good news/bad news scenario for the housing market,” Blomquist said.
“The good news is that fewer cash buyers should help loosen up inventory of homes for sale and reduce competitive bidding, giving first time homebuyers and other non-cash buyers more opportunities,” he continued.
“The bad news is that some of those first time homebuyers 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,” Blomquist said.
Have a story idea or real estate tip? Contact John Rebchook at JRCHOOK@gmail.com. InsideRealEstateNews.com is sponsored by Universal Lending, Land Title Guarantee and 8z Real Estate. To read more articles by John Rebchook, subscribe to the Colorado Real Estate Journal.