Investors, Cash Sales Returning to More Normal Levels

The National Association of Realtors® reported last weekrnthat first time buyers had increased their share of existing home sales in Mayrnby two percentage points and in a market where sales were up 9.2 percent in arnyear had increase their share of those sales by 5 points.  On Thursday we got, as a famous newscasterrnused to say, “The rest of the story.”  </p

RealtyTrac reported, in its Mayrn2015 U.S. Home & Foreclosure Sales Report that both cash sales andrninstitutional sales have shrunk again during the month, and in the case of cashrnsales are nearly back to historical norms. rnThese sales had been cited as providing competition to traditionalrnbuyers both because they could close a transaction quickly and often boughtrnwithout mortgage and perhaps even inspection contingencies. </p

Institutional investors, which RealtyTrac defines asrnentities purchasing at least 10 properties in a calendar month, purchased 2.4rnpercent of single family homes that sold in May, the lowest share in recordsrngoing back to January 2000.  All cash purchasesrnaccounted for 24.6 percent of sales compared to 28.5 percent in April.  May cash sales were close to the long-term average sincernJanuary 2000 of 24.8 percent and well below their recent peak of 42.2 percentrnin February 2011. </p

Daren Blomquist, vice president atrnRealtyTrac said, “As housing transitions from an investor-driven, cash-is-kingrnmarket to one more dependent on traditional buyers, sales volume has beenrnincreasing over the last few months and is on track in 2015 to hit the highestrnlevel we’ve seen since 2006.  And whilernsellers this spring are realizing the biggest average equity gains since 2006,rnhome price appreciation is softening as the supply-and-demand balances tip morernin favor of buyers and as banks began to clear out some of their more highlyrndistressed foreclosures that sell at scratch-and-dent prices.”</p

The price softening to which Blomquistrnreferred was barely evident in the median price of all properties, both distressedrnand non-distressed, sold in May which were up 4 percent from April to $173,900rnbut were down 1 percent compared to a year earlier.  It was the first month of year-over-yearrndeclines after 36 months of annual increases. rnRemoving distressed properties from the equation also removes the year-over-yearrnloss.  The median sales price ofrnnon-distressed residential properties that sold in May was $205,000, a 6rnpercent gain from April, a 9 percent year-over-year increase, and the 37^{th</supconsecutive month for annual gains in that metric. The median price ofrndistressed properties was $116,192, less than 1 percent higher than April, downrn2 percent from the May 2014 level and the first decline after 13 months ofrnannual gains.  </p}

“Distressed sales in May represented arnsignificantly smaller share of a growing home sales pie as an increasing numberrnof non-distressed sellers continued to cash out on the equity they’ve gainedrnover the last three years of rising home prices,” Blomquist said. “But thoserndistressed sales are still acting as a drag on home prices, selling at a medianrnprice that is 43 percent below the median price of a non-distressed sale – thernbiggest gap we’ve seen since we began tracking that distressed discount inrnJanuary 2006.</p

The share of distressed sales droppedrnto a new low of 10.5 percent in May, down from 15.4 percent in April and fromrn18.3 percent a year ago to the lowest level since January 2011 – the earliestrnthat RealtyTrac has this data.  Bank-ownedrnsales accounted for 3.9 percent of all residential property sales in May, downrnfrom 6.9 percent in the previous month and down from 6.9 percent the previousrnmonth and down from 9.0 percent a year ago to the lowest level since Januaryrn2011.

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