Now more than ever, cash is king in real estate

One in three buyers of U.S. homes is paying cash, a record high number, according to data made available to McClatchy.

The trend is being driven by retiring baby boomers and rich investors, who unlike most first-time buyers can bypass tighter lending requirements to pay cash. They now rule the roost, composing record percentages of residential home sales.

It’s meant the field is closed off for conventional purchasers in some hot markets, but in others it’s meant forward momentum for the struggling housing sector.

All-cash sales as a percentage of residential real estate sales stood at 33 percent from January to March this year. That’s up from 31 percent for all of 2013 and 2011 and 29 percent for 2012. These are the highest percentages since the National Association of Realtors started collecting the data in 2008. Before that, it estimated that cash buyers historically represented less than 10 percent of all sales.

The group analyzed state-level numbers on behalf of McClatchy, and it found that states such as Florida, South Carolina and Wyoming had outsized cash sales during the first quarter of 2014.

The rising cash sales come despite a drop in one of the main draws for cash purchases: financially distressed properties sold through foreclosures or at a loss to the banks.

“What is surprising is how cash continued to remain high even though distressed property sales are declining. Distress sales invited all the cash purchases,” said Lawrence Yun, the chief economist for the Realtors’ group.

Distressed home sales declined from 26 percent of the national market in 2012 to 17 percent in 2013 to 15 percent in the first three months of 2014. It means that even as the housing market heals and conventional sales return, all-cash purchases remain a big chunk of residential sales.

Yun points to a couple of trends that are driving the boom in cash purchases, trends that fall into the broader debate about rising income inequality in the United States. One driver appears to be wealthy investors, foreign and domestic, diversifying into real estate. Another is baby boomers selling homes that were paid off and retiring elsewhere with the proceeds, purchasing homes.

“Trade-downs are certainly a reason,” Yun said. “The five-year bull run on the stock market is also helping the upper-end households,” he added, noting many are diversifying out of stocks after several years of big gains.

That’s in line with what 41-year veteran Sandra Schede has been seeing.

“The rates (of return) are so low for putting their money into the bank or investments at this time that it makes much more sense to purchase real estate using cash,” said Schede, the incoming president of the Connecticut Association of Realtors.

“The rental market is really strong right now, so it gives them a better return over a short period of time.”

Boomers are buying the higher-priced properties with cash, while investors tend to buy below the midpoint price.

The trend raises questions about where first-time homebuyers fit in.

“I am worried, honestly, about having a real-estate finance structure that enables people to borrow and get a reasonable mortgage,” said Leslie Appleton-Young, the chief economist of the California Association of Realtors.

Her state sees cash buyers from China and Canada snap up investment property of all sorts in Los Angeles and the San Francisco area, and often traditional buyers “are not able to compete with all-cash,” she said.

More in Herald Business Journal

Snohomish County’s campaign to land the 797 takes off

Executive Dave Somers announced the formation of a task force to urge Boeing to build the plane here.

A decade after the recession, pain and fear linger

No matter how good things are now, it’s impossible to forget how the collapse affected people.

Panel: Motorcycle industry in deep trouble and needs help

They have failed to increase sales by making new riders out of women, minorities and millennials.

Costco rises as results display big-box retailer’s resiliency

Their model has worked in the face of heightened competition from online, brick-and-mortar peers.

For modern women, 98-year-old rejection letters still sting

In a stark new video, female Boeing engineers break the silence about past inopportunity.

Tax reform needs the public’s input on spending priorities

The GOP tax plan is a good idea, but the next step should give us a voice on how taxes are spent.

Commentary: GM, Boeing fight a war of words over Mars

Boeing is strongly signaling how crucial deep-space exploration is to its future.

Under cloud of ethics probes, Airbus CEO Enders to step down

He leaves in 2019 after 14 years. Meanwhile, aircraft division CEO Fabrice Bregier leaves in February.

$4.99 sandwich promotion irks some Subway business owners

Management insists that “most franchisees support the promotion.”

Most Read