All Cash Home Buyers Purchase at 23 Percent Discount in U.S.

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According to RealtyTrac's Q1 2016 U.S. Cash & Institutional Investor Housing Market Report, all-cash buyers of single family homes and condos nationwide paid 23 percent less per square foot than all homebuyers, but that cash buyers in 9 percent of local housing markets paid a premium price per square foot.

Nationwide all-cash buyers purchased single family homes and condos for a median $91 a square foot in the first quarter of 2016, a discount of 23 percent below the median $118 per square foot for all home purchases.

"While large institutional investors and other cash buyers continue to shrink as a share of U.S. home sales, these buyers still typically beat out traditional buyers using financing -- in some cases even when they submit a lower offer for a home," said Daren Blomquist, senior vice president at RealtyTrac. "Additionally cash buyers are often willing to take on properties in poor condition that may not readily qualify for standard financing, another reason why cash purchases normally sell at a lower price per square foot.

"Markets where we see the opposite -- with cash buyers actually paying a premium price per square foot -- could be in danger of overheating," Blomquist added. "In most markets, cash buyers act as an anchor for home values, but in these exceptions to the rule, cash buyers are acting as an oversized sail, catching more wind and pushing home price appreciation to a potentially precarious pace."

Markets with biggest cash buyer discounts

Among 99 metropolitan statistical areas with at least 1,000 single family home and condo sales in the first quarter of 2016 -- and with sufficient home price and loan data collected from public records by RealtyTrac -- those where cash buyers realized the biggest discounts were Baltimore (58.2 percent discount); Harrisburg, Pennsylvania (52.0 percent discount); Akron, Ohio (50.2 percent discount); Birmingham, Alabama (49.3 percent discount); and Columbia, South Carolina (48.3 percent discount).

"With low available home inventories across Ohio, we are seeing investors and retail home purchasers leveraging cash purchases to minimize price negotiations when making purchase offers in order to eliminate the potential of being forced into bidding wars in multiple offer situations," said Michael Mahon, president at HER Realtors, covering the Cincinnati, Dayton and Columbus markets in Ohio -- all of which posted average cash buyer discounts of 39 percent or higher. "This, coupled with some agents and brokerages placing artificial restrictions on access to properties available for showing by utilizing such marketing concepts as 'coming soon' means that markets are becoming artificially manipulated, and buyers utilizing financing often have to pay greater than list price to secure a home purchase."

Other markets with cash buyer discounts ranking in the top 10 highest in the first quarter of 2016 included Cleveland, Ohio (47.4 percent discount) and Memphis, Tennessee (43.7 percent discount).

"Due to a loosening of credit with more loan options, low interest rates, along with an increase in first home buyers, the share of cash sales dropped 10 percent in each of our three South Florida counties year over year," said Mike Pappas, president and CEO at The Keyes Company, covering South Florida. "Even though the investor market has also diminished, cash investors are able to secure a 20 percent discount in purchase price over a traditional buyer in Broward County and a 15 percent discount in Palm Beach County, while the cash buyer discount in Miami-Dade County is at 5 percent."

Markets where cash buyers paid a premium

All-cash homebuyers in the first quarter paid a premium price per square foot in nine of the 99 metro areas analyzed (9 percent), led by Honolulu (6.6 percent premium); Seattle (5.2 percent premium); San Francisco (4.8 percent premium); Naples, Florida (3.9 percent premium); and San Diego (2.5 percent premium).

Other markets where cash buyers paid a premium per square foot for homes purchased in the first quarter were San Jose, California (2.2 percent premium); Los Angeles (2.2 percent premium); Cape Coral-Fort Myers, Florida (1.5 percent premium); and Oxnard-Thousand Oaks-Ventura, California (0.2 percent premium).

While cash buyers still realized a 14.2 percent discount in the greater New York metro areas, buyers in New York County (Manhattan) paid a 5.0 percent premium price per square foot.

The 9 percent of markets where cash buyers paid a premium in the first quarter of 2016 is up from 5 percent of markets where cash buyers paid a premium in the first quarter of 2015.

Institutional investor share down annually for 11th consecutive quarter

Institutional investors -- entities that purchase at least 10 single family homes and condos in a calendar year -- accounted for 2.6 percent of all single family home and condo sales in the first quarter, down from 4.0 percent in the previous quarter and down from 3.4 percent a year ago. The year-over-year decrease in the first quarter marked the 11th consecutive quarter where the institutional investor share of sales has decreased on a year-over-year basis.

The share of institutional investor home purchases in the first quarter of 2016 decreased from a year ago in 87 of the 110 metro areas (78 percent), including, among the nation's 20 largest metro areas, San Francisco (down 64 percent); Seattle (down 57 percent); Riverside-San Bernardino, California (down 57 percent); San Diego (down 52 percent); Los Angeles (down 44 percent); Detroit (down 41 percent); and Dallas (down 38 percent).

"It's no surprise to me that there has been an ongoing decline in investor purchases in the Seattle area," said Matthew Gardner, chief economist at Windermere Real Estate, covering the Seattle market. "In fact, I expect to see a shift in which investors will enter the market with the intention to sell their properties rather than buy. The housing market is peaking in Seattle, and inventory is very limited, so the time to cash in on these investments may well be upon us."

Markets with highest share of institutional investors

Among 110 metro areas with at least 1,000 single family and condo sales in the first quarter, those with the top five highest share of institutional investor purchases were Birmingham, Alabama (9.9 percent); Augusta, Georgia (7.4 percent); Memphis, Tennessee (7.0 percent); York-Hanover, Pennsylvania (6.9 percent); and Atlanta (6.7 percent).

Metro areas with the biggest year-over-year increase in share of institutional investor purchases in the first quarter were Birmingham, Alabama (up 582 percent); Knoxville, Tennessee (up 98 percent); Crestview-Fort Walton Beach, Florida (up 94 percent); Pittsburgh, Pennsylvania (up 85 percent); and Albuquerque, New Mexico (up 84 percent).