Throughout my first 10+ years in the Real Estate business, cash transactions were relatively rare and typically represented less than 10% of all single family home sales in our market. In 2008, as the inventory of distressed properties (Bank-Owned & Short Sale) grew, so did the proportion of cash purchases. In 2013 for example, 31% of all Reno/Sparks, single family homes sold were cash transactions. While every cash buyer is not necessarily an investor I have found this factor to be a pretty reliable indicator of an investment purchase, particularly in our “affordable” price ranges.
It’s a moving target but at the moment I consider $250,000 and below to be affordable in our area. Most of the First-Timers I’ve worked with over the past couple of years have fallen into that range. Beginning in 2012, this price point has undergone a very high rate of appreciation quite similar to what we experienced in the run-up of 2001 – 2004. At that time, once home prices moved past the point at which investments failed to “pencil”, the investor traffic slowed quite significantly. Today the percentage of cash purchases has remained fairly consistent as the above graph illustrates. Fourth quarter, cash sales in the $150,000 – $250,00 price range remained at just over 17% in both 2014 and 2015. Based upon my recent experience, traditional considerations such as Cash on Cash and Capitalization Rate have somewhat fallen behind the investor’s expectation of future appreciation.
I have experience with and empathy for all parties in this predicament. While my two most recent closed escrows have been investor driven my current first-time, FHA buyers have elected to quit looking for now. Their frustration with our current market conditions has inspired them to save towards a larger down-payment. My sellers often wrestle with the choice of a financed transaction with many moving parts or a simple, cash deal which provides less in net proceeds. I’m not passing judgement on myself or any of my clients, I’m grateful for the book of business I have. However, I do hope those buyers can save money fast enough to keep pace with our home inventory and pricing. At least for now, the deck is stacked against them.