All-cash sales increased to 38.1% of all single-family home sales in November – up from 28.9% in October and up from 30.9% in November 2014, RealtyTrac reports.
It was the highest rate of all-cash sales since March 2013, when 38.8% of all sales were all-cash.
The 23% year-over-year increase in all-cash sales follows 29 consecutive months of year-over-year decreases.
‘The jump in cash sales is likely a knee-jerk reaction to the new documentation and disclosure rules for mortgages that took effect in October, making it even more difficult for buyers using financing to compete with cash buyers in the already competitive housing market,’ says Daren Blomquist, vice president at RealtyTrac. ‘Global economic instability may also be driving more foreign cash buyers back to the relative safety of U.S. real estate.’
Metropolitan areas that saw the biggest increases in all-cash sales, year over year, were San Francisco (up 89%); San Jose, Calif. (up 74%); Columbus, Ohio (up 73%); Milwaukee (up 71%); Providence, R.I. (up 59%); and Portland, Ore. (up 53%).
‘Many factors have increased the use of cash in the marketplace, including continued activity of institutional investors, large equity buyers seeking negotiation advantage in a low available inventory market, as well as an increase in immigrant purchasers whose culture prohibits use of debt instruments in making purchases,’ explains Michael Mahon, president at HER Realtors, covering the Cincinnati, Dayton and Columbus markets in Ohio. ‘As we approach 2016, available market inventory is predicted to be much of the same. As interest rates continue to rise, and new government regulations create added hurdles for some consumers to qualify for mortgage financing, predictions are for cash sales to account for more than one-third of the closed residential transaction volume for much of 2016 across the Ohio markets.’
‘Given that we saw spikes in cash sales at the state as well as national level, we can assume that this was not a geographically isolated incident and that there were more fungible reasons for it,’ adds Matthew Gardner, chief economist at Windermere Real Estate, covering the Seattle market, where 31.9% of all home sales in November were cash sales, up 38% from a year ago. ‘We tend to see seasonal spikes in all-cash home sales in the winter months, but this jump was somewhat exaggerated. I believe that we can attribute this to the remarkably tight housing market in Seattle. Buyers that have the ability to pay cash understand that they are in an enviable negotiating position when offers are being reviewed.’
Cities with the highest share of cash sales in November were Miami (59.7%); New Orleans (54.8%); Oklahoma City (51.4%); Tampa, Fla. (50.6%); and Orlando, Fla. (49.9%).
‘One reason for the cash sales – we are a world destination for flight/security money,’ says Mike Pappas, CEO and president of Keyes Company, covering the South Florida market. ‘We have strong Central and South American interest in creating a safe haven for their families. The new mortgage rules do make it more difficult for these individuals to qualify for a conventional mortgage as their income source is not in the U.S.’
In a related development, the Financial Crimes Enforcement Network (FinCEN) is temporarily requiring certain title insurance companies in New York City and Miami-Dade County, Fla., to identify the persons behind companies used to pay ‘all cash’ for high-end residential properties.
In a release, FinCEN officials say the agency is concerned that certain individuals may be attempting to hide their assets and identity through these all-cash purchases. As a result, FinCEN will require certain title insurance companies to identify and report the true ‘beneficial owner’ behind a legal entity involved in certain high-end residential real estate transactions in Manhattan and Miami-Dade County.