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Cash Buyers Beak the Bank

By Steve Cook Real Estate Economy Watch   |   March 4, 2011 at 10:58 AM
All-cash home sales are setting records in market after market around the country as investors account for a growing share of home purchases and individual buyers, especially first-time buyers, fade as mortgage rates rise and home buyer demand softens further.

According to the National Association of Realtors, buyers paid cash for 23 percent of all homes bought in January, the highest share since NAR started measuring cash versus credit sales in October 2008, when they accounted for 15 percent of the market. The average of all-cash deals was 20 percent in 2009, rising to 28 percent last year.

"Increases in all-cash transactions, the investor market share and distressed home sales all go hand-in-hand. With tight credit standards, it's not surprising to see so much activity where cash is king and investors are taking advantage of conditions to purchase undervalued homes," Yun said.

Washington DC's MRIS, the nation's largest MLS, reported yesterday that cash purchases jumped 35 percent in 2010, to 16.4 percent of all purchases in 2010, 12.1 percent of all purchases in 2009. But the cash bandwagon is rolling even faster other major markets around the country.

The hottest cash hot spots are in California and Florida, popular investor markets. Cash buyers accounted for a record 30.9 percent share of the Golden State's houses and condos in January as low prices lured investors and others, according to San Diego research firm DataQuick Information Systems.

Almost three out of 10 homebuyers in San Diego County in January closed with cash, the highest it's been in 21 years, Some 28 percent of new and resale homes bought in the county last month had no records of mortgages, matching the percentage of cash purchases one year ago during the same time. In the nine-county Bay Area, 28.7 percent of homes sold in January did not show a record of a mortgage, compared with 26 percent a year earlier. That was a record for the region, which has averaged about 12.4 percent of monthly sales being for cash over the past decade, according to DataQuick

In January this year, a record 23.4 percent of the homes sold in the Seattle Metro were purchased by buyers paying cash, compared with 21.0 percent in December and 19.6 percent in January 2010. The monthly average is 11.3 percent since 1994, when DataQuick's complete statistics begin for the Seattle region.

"Most sellers would rather deal with the certainty of cash rather than the uncertainty of buyers who need to qualify for a loan," said Andrew LePage, an analyst with DataQuick told the San Diego Union Trib. "Some of this is from investors using cash so they'll be first in line when there are multiple buyers bidding,"

Cash sales in Las Vegas, another destination popular with investors, accounted for 54.5 percent of total January sales. Last month's level of all-cash purchases was up from 50.6 percent in December and 50.4 percent a year ago.

About 54 percent of home purchases in Palm Beach, Broward and Miami-Dade counties were cash buys in the final quarter of 2010. That's about 7,530 homes and condominiums between October and December that were paid for in cash.

In South Florida's real estate zenith of 2006, just 13 percent of sales were in cash. In pre-boom 1997, cash buys made up 31 percent of the market.

Of 11 major metropolitan areas in the country, South Florida had the highest percentage of cash buys in the fourth quarter of last year.

"I haven't pulled a mortgage in six months," said Corcoran Group agent Anthony Pizzarelli, who specializes in downtown West Palm Beach condos told the Palm Beach Post. "You just have a lot of people with a lot of cash running around."

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