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One-third of California residential property sales were all-cash purchases in 1Q

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About one-third (33.3 percent) of all California residential property sales in the first quarter were all cash purchases, up from 29.3 percent in the fourth quarter of 2013 and up from 20.3 percent in the first quarter of 2013, according to RealtyTrac’s Q1 2014 U.S. Institutional Investor & Cash Sales Report.

Nationwide, the share of all-cash sales reached a new high in the first quarter even as the share of institutional investor purchases dropped to the lowest level since the first quarter of 2012.

Institutional investors -- entities that have purchased at least 10 properties in a calendar year -- accounted for 2.5 percent of all California residential sales in the first quarter, down from 4.2 percent in the previous quarter and down from 5.3 percent in the first quarter of 2013.

Major metro areas with an annual decrease in the share of institutional investor purchases included New York (down 44 percent), Los Angeles (down 80 percent), Chicago (down 41 percent), Washington, D.C. (down 52 percent) and Phoenix (down 14 percent).

“Institutional investors have bought up much of the affordable inventory they are traditionally interested in, which explains the decrease in institutional investor sales,” said Chris Pollinger, senior vice president of sales at First Team Real Estate, covering the Southern California market. “We are seeing a rise in foreign buyers purchasing high-end homes, which is contributing to the rise in all-cash purchases.

“Inventory shortages as well as lending regulations favor the all-cash buyer, which explains the increase in cash sales on both a national and local level.”

The report shows 42.7 percent of all U.S. residential property sales in the first quarter were all-cash purchases, up from 37.8 percent in the previous quarter and up from 19.1 percent in the first quarter of 2013 to the highest level since RealtyTrac began tracking all-cash purchases in the first quarter of 2011.

The average sales price of an all-cash purchase in the first quarter was $207,668 -- 13 percent below the average estimated full market value of the properties that were purchased: $237,900.

Fifteen percent of all-cash purchases in the first quarter were properties in the foreclosure process, and 10 percent were bank-owned properties.

Fifty-two percent of all-cash purchases in March (most recent month’s data only available for this metric) were sold to buyers with a different mailing address than the property address -- indicating investors or second-home buyers. That compares with 34 percent of all sales -- cash and financed -- sold to investors or second-home buyers in March.

Eleven percent of all-cash purchases in the first quarter were to institutional investors, investors buying at least 10 properties in a calendar year.

Institutional investors accounted for 5.6 percent of all U.S. residential sales in the first quarter, down from 6.8 percent in the fourth quarter of 2013 and down from 7.0 percent in the first quarter of 2013 to the lowest level since the first quarter of 2012.

The average sales price of institutional investor purchases in the first quarter was $128,747 -- 18 percent below the average “after repair” estimated market value of the homes being purchased: $156,529. Thirty-five percent of institutional investor purchases were properties built in 2000 or later, and 50 percent were built in 1990 or later.

Eighty-four percent of all institutional investor purchases were all-cash purchases in the first quarter.

Thirty percent of all institutional investor purchases were properties in the foreclosure process, and 15 percent were bank-owned properties.

“Strict lending standards combined with low inventory continue to give the advantage to investors and other cash buyers in this housing market,” said Daren Blomquist, vice president at RealtyTrac. “The good news is that as institutional investors pull back their purchasing in many markets across the country, there is still strong demand from other cash buyers -- including individual investors, second-home buyers and even owner-occupant buyers -- to fill the vacuum of demand left by institutional investors.

“While the institutional investor purchase share declined in the first quarter in 18 of the top 20 markets for institutional investor share a year ago, home prices continued to appreciate in most of those markets, albeit at a slower pace in many cases,” Blomquist said.

There are a couple of notable exceptions that could be cause for concern, he said, such as Jacksonville, Fla., where the institutional investor share of purchases was down to 13.5 percent in the first quarter compared with 18 percent a year ago, and where median home prices decreased 1 percent from a year ago in March after 15 consecutive months of annual increases; and Greensboro, N.C., where the institutional investor share of purchases was down to 6.4 percent in the first quarter compared with 10 percent a year ago, and where median home prices decreased 8 percent from a year ago in March following 14 of 16 months in which median home prices increased annually.

Among metropolitan statistical areas with a population of at least 500,000, those with the top five highest-percentages of cash sales were all in Florida: Cape Coral-Fort Myers, (73.6 percent), Miami (67.1 percent), Sarasota, (65.1 percent), Palm Bay, (64.1 percent), and Lakeland, (61.8 percent), Blomquist said.

Other major metro areas with more than 50 percent all-cash sales included New York (57.0 percent), Columbia, S.C., (56.1 percent), Memphis (54.9 percent), Detroit (53.5 percent), Atlanta (53.2 percent) and Las Vegas (52.2 percent).

Among metropolitan statistical areas with a population of at least 500,000, those with the biggest annual increase in share of institutional investor purchases were Baton Rouge, La., (up 131 percent), San Francisco (up 92 percent), McAllen, Texas (up 62 percent), Allentown, Pa., (up 49 percent), and Omaha, Neb., (up 49 percent), Blomquist said.

Other major metro areas with an annual increase in the share of institutional investor purchases included Dallas-Fort Worth (up 45 percent), Miami (up 8 percent), Atlanta (up 38 percent), Minneapolis (up 8 percent), Tampa (up 17 percent), San Antonio (up 25 percent), and Las Vegas (up 24 percent).

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