A high percentage of cash deals in an area doesn’t mean there are a high number of rich people buying houses with their wads of cash. It actually means quite the opposite.
High numbers of cash deals means investors are active–either to take advantage of a rental cash flow opportunity, or to buy distressed properties that are going into foreclosure.
Who Normally Buys with Cash:
2) Foreign buyers
3) Hot market incentivizes cash offers
4) They sold their home and are moving to buy their next home with cash (think, retirees).
There were huge numbers of cash deals during the recession and the years immediately following in 2008-2014 driven mainly by the large number of distressed sales.
As the market nationwide starts to race toward maturity, we wanted to see what cities around the U.S. were still seeing a higher than usual percentage of all cash deals, and which cities were closer to maturity.
Cash Trends for 2017
According to NAR, in January 2017 the percentage of homes sold for cash was 23%. The major influencers of cash purchases for that month, according to NAR, were 1) Investors 2) foreign buyers and 3) Distressed property sales.
With this in mind, we will use 23% as our baseline for what a “normal” percentage of cash deals would look like.
Our list was built with help from Jon Whitely over at Redfin, a national real estate brokerage. Thanks to Redfin’s huge repository of data, we were able to come up with a comprehensive list of metros for our report.
All of the cities had to have at least 5,000 total deals to qualify for making the list.
They are then ranked in terms of the percentage of all the housing sales that were done using all cash.
The first grouping of cities that come in low on the list are in Colorado.
Denver / Colorado Springs / Greely
It’s no secret that many markets in Colorado have been red hot for the last few years, and it appears that the market is heading toward a maturity.
Data from Truila shows an increase of between 7-10% of the median home sales price over the past year for these cities.
Given the lack of cash deals so far this year, I would suspect that many investors have exited stage left for greener pastures with more distressed sale opportunities.
The data from Redfin reflects this observation–all three metros came in at the bottom of the list, all below 16%
Florida Cities Making it Rain Cash
A whopping 12 cities in Florida all came in with higher than average cash deals in 2017. Florida had historically high cash rates from 2011-2014 as investors were coming through to snatch up distressed properties for pennies on the dollar.
A lot of the distressed inventory has dried up, but the headwinds for non-cash deals persist thanks to stricter scrutiny on condominium loans from Fannie Mae and Freddie Mac. Condos with too many investors, or associations that don’t have the proper documentation to prove they have sufficient reserves are not being loaned on.
While that could change in the future with condo associations getting better record keeping (or Fannie and Freddie easing up on regulations) it is one of the factors holding up the cash deal numbers.
There are also a high number of retirees that are selling their houses in the north and taking the cash to buy their retirement house in Florida.
While the number of cash deals has dramatically decreased from the low 60%’s from just a few years ago, the south Florida market still remains one of the top distressed property markets in America, keeping it ranked highly on our list for 2017.
The Biggest Movers from 2016 to 2017
In 2016, Tucson saw 26.4% cash deals. This year that has more than doubled to 67.8%–good for 1st on the list.
Let’s take a deeper dive to see what happened in Tuscon to make this change.
Looking at Trulia’s real estate trends, the number of rentals skyrocketed from January 2017 with 1372 units to a high point of 3758 units in May of this year.
The cash activity and rental unit increase indicates investors saw the Tucson area as an opportunity to invest in rental units, and they made a heavy push this year on those properties.
Newark also saw a nice bump up from 49% to 61%. Nearby Jersey City is 5 times more expensive per square ft. on average, according to Trulia data, so I expect this trend of high % of cash deals will continue as investors get priced out of property closer to the Hudson River.
Almost all metros remained flat from 2016
Almost all of the cities on our list from Redfin were in line with the numbers from 2016.
Obviously, the data from Redfin isn’t exhaustive, but it paints the picture of a maturing market and perhaps a leveling off in many cities as distressed properties are becoming more and more rare.
According to ATTOM data solutions, distressed sales were down to all time lows in 2016 at 16.2%.
Given the leveling off of cash deals we are seeing with 2017 numbers, I expect that trend to continue into 2017, followed by increased profits as people decide to take their new found equity off the table–the first time that’s been possible for 10 years.
The “low water” mark set in 2007 was 13.7%. If we reached that number in 2017, it would be a watershed moment for the industry as a whole. In the years leading up to the uptick in 2007, distressed property sales were under 10%.
Below is the complete list ranked from lowest to highest:
|City||% of deals cash||Total number of deals|
|Colorado Springs, CO||13.9%||14,031|
|San Diego, CA||18.2%||30,619|
|San Jose, CA||19.5%||13,699|
|Los Angeles, CA||19.9%||62,790|
|Minneapolis-St. Paul, MN||19.9%||42,641|
|Hampton Roads, VA||20.6%||16,985|
|Orange County, CA||22.3%||26,922|
|Ventura County, CA||22.8%||6,808|
|Riverside-San Bernardino, CA||24.7%||50,271|
|San Francisco, CA||28.9%||10,777|
|Little Rock, AR||29.1%||7,774|
|St. Louis, MO||30.1%||10,105|
|Long Island, NY||31.6%||21,544|
|Las Vegas, NV||33.2%||47,907|
|Oklahoma City, OK||33.2%||18,104|
|Grand Rapids, MI||34.2%||7,957|
|Baton Rouge, LA||34.9%||7,772|
|New York, NY*||35.4%||11,950|
|New Orleans, LA||37.3%||9,116|
|Port St. Lucie, FL||39.3%||8,047|
|Hudson Valley, NY||40.5%||7,152|
|Fort Lauderdale, FL||42.0%||33,256|
|Fort Myers, FL||43.4%||16,479|
|North Port, FL||45.6%||18,704|
|West Palm Beach, FL||47.0%||28,547|
-At least 5000 total sale records
-Data pulled from regional MLS in each metro
-% of cash deals calculated by dividing by the total number of deals
-Date range: January 2017-August 2017