Cash buyers made up 31% of California homebuyers in January 2011, a record high and the same as one year earlier. The proportion of cash buyers is up slightly from 29% in December 2010. For comparison, California’s historical average rate of cash purchases is 14%.
The January bounce in cash buyers is due to lower prices and low sales numbers, along with speculator expectations that a homebuyer willing to pay a greater price is just around the corner.
Cash deals have become especially common in the low-tier home market. Buyers who purchase with cash may be simply unable to qualify for a conventional mortgage, but the majority of cash buyers gain an advantage over offers contingent upon a purchase-assist loan. A cash offer moves to the front of the line, and can often reduce the price paid for the property by as much as 10%.
52% of cash buyers in January were absentee buyers who do not intend to occupy the property. January also registered the lowest number of home sales statewide since March of 2008. As a result, flippers are taking advantage of sparse competition from users to buy properties at low prices. [For more on monthly home sales, see the Market Chart, Home Sales Volume and Price Peaks.]
52% of homes purchased in January had been foreclosed on in the preceding 18 months. 75% of cash purchases were resale homes, and 22% were resale condos. Only 2.5% were newly-built homes. The highest volumes of cash buyers were in Riverside, San Bernardino and Sacramento counties. [For historical records of foreclosures in California, see the Market Chart, NODs and Trustee’s Deeds.]
first tuesday take: The rise in cash buyers is an expected but unfortunate indicator of California’s still-unhealthy real estate market. While a small number of cash buyers is inevitable (and in an ideal world, all buyers would have the resources to pay in cash), the fact is the vast majority of cash buyers are not purchasing homes in order to inhabit them. Instead, they intend to flip the property quickly for profit. Thus, the inventory for sale is not much reduced by cash sales.
A healthy real estate market produces a high volume of resales to users who intend to occupy the properties they purchase. The lack of sales to buy-to-let investors and homebuyer-occupants exposes California’s dire need for jobs. Once the number of jobs in California begins to climb, the number of users will follow suit. [For more information regarding California unemployment, see the March 2011 first tuesday article, Reeling from California unemployment.]
Re. “Record portion of CA homes bought with cash” from MDA Dataquick