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Fewer Homes Going to All-Cash, Institutional Buyers

money-houseAll-cash buyers and institutional investors accounted for a declining share of home sales in the third quarter, putting a bigger burden on traditional mortgaged buyers to carry the housing recovery forward.

In a report released Thursday, real estate data firm RealtyTrac revealed that 33.9 percent of single-family home and condo sales last quarter were transacted in cash, down from 36.9 percent in the second quarter and flat from last year.

Meanwhile, sales made to institutional investors—defined by the firm as entities that purchase at least 10 properties in a year—made up 4.3 percent of all single-family and condo sales, sinking to a nearly four-year low. Institutional investors accounted for 5 percent of sales in Q2 and 5.3 percent of sales a year ago.

While the decline in both categories leaves more room for buyers who require mortgage financing, analysts at RealtyTrac say those two groups are still an important piece of the real estate puzzle as they continue to help drive up home prices from their trough in 2012.

"As institutional investors and other cash buyers slow down their purchasing in many markets across the country, more traditional buyers—including first-time homebuyers and move-up buyers—will need to increasingly fill in the missing puzzle pieces to maintain the momentum of the housing recovery," said Daren Blomquist, VP at RealtyTrac.

According to the company, cash sales were up from last year in 22 states, including Texas (32.4 percent compared to 21.5 percent in Q3 2013), Indiana (31.1 percent compared to 21.7 percent), Massachusetts (30.7 percent compared to 24 percent), and Connecticut (36.9 percent compared to 31.8 percent).

RealtyTrac also found that cash sales last quarter were concentrated at the lowest and highest extremes of the housing market, accounting for 64 percent of home purchases made under $100,000 and 41 percent of purchases made above $2 million. Cash sales also represented a large share of distressed sales, making up 54.6 percent of transactions involving homes currently bank-owned or in the process of foreclosure.

For institutional investors, RealtyTrac reports sales share rose in eight states from Q3 2013 to Q3 2014, including Iowa (8.4 percent from 3.6 percent last year), Ohio (5.9 percent from 4.1 percent), Maryland (4.4 percent from 3.5 percent), and Florida (7.2 percent from 6.4 percent).

As for property types, the company said those buyers are sticking to the lower tiers of the market.

"Institutional investors are still actively purchasing single family rentals, but continue to gravitate toward markets where lower-end inventory is still available," Blomquist said.

About Author: Tory Barringer

Tory Barringer began his journalism career in early 2011, working as a writer for the University of Texas at Arlington's student newspaper before joining the DS News team in 2012. In addition to contributing to DSNews.com, he is also the online editor for DS News' sister publication, MReport, which focuses on mortgage banking news.
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