Increase in All-Cash Home Purchases

According to a recent report in Real Estate Economy Watch, nearly one out of three home sales in December 2011 went to buyers who paid all cash, adding credence to the belief that investors are key to the recovering real estate market.

The report was based on the findings from the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, which surveys approximately 2,500 real estate agents nationwide each month. According to the survey, in December, the overall proportion of cash buyers in the housing market surged to a record 33.2 percent, up from 29.6 percent a year earlier, and 74 percent of investors used all cash to buy homes. Investors accounted for 22.8 percent of home purchases in December 2011, up from 22.2 percent a month earlier.

The combination of all cash and shorter closing timelines convinced many sellers to accept lower bids. The survey found that cash buyers are able to bid significantly lower—and successfully—on many properties because they offer a shorter and more reliable closing timeline. This is particularly true for bids on distressed properties, because mortgage servicers selling foreclosed properties generally prefer transactions that can settle within 30 days.

The total share of distressed properties in the housing market in December, as represented by the HousingPulse Distressed Property Index (DPI), continued at a high level of 47.2 percent, using a three month moving average. This is the 24th month in a row that the DPI has been above 40 percent.

While investor bids may not be the first offers accepted, they often end up winning properties after other homebuyers are eliminated because of mortgage approval or timeline problems.

Source: Real Estate Economy Watch