Cash’s grip on the housing market loosened during the first quarter as investors pulled back and more traditional buyers waded into the market, according to a new report from Zillow.
All-cash deals still accounted for well over half of sales in some markets, with cash buyers continuing to feast on the cheapest homes — a pattern that has caused headaches for first-time buyers, Zillow said.
Entry-level buyers appear to be facing some of their stiffest competition from investors in markets likes Tampa, Detroit and Miami, where more than 80 percent of all sales in the lowest price bracket were cash deals.
Slicing up cash sales by price tiers points towards cash sales’ disproportionate impact on first-time buyers. In 27 of the 30 largest metros, they accounted for more than a third of home purchases in the bottom third of home values.
Still, traditional buyers are mounting a comeback.
“Housing is much more than an investment for most buyers, and it’s heartening to see more buyers armed with traditional financing begin to enter the market,” said Zillow Chief Economist Stan Humphries. “This is a critical step on the way back to a more normal, balanced housing market.”
Cash buyers accounted for 39.7 percent of all sales in 126 metros tracked by Zillow in the first quarter of 2014, down from 45.3 percent the same quarter a year ago.
The percentage of sales that were all cash dropped in 102 of the 126 metro areas tracked by Zillow. Among the 30 largest metros, the share of cash buyers during the first quarter was highest in Miami (64.9 percent), Tampa (57.1 percent) and Cleveland (54.2 percent).
Large metros with the lowest share of cash sales in the first quarter were Virginia Beach (17.4 percent), Denver (22.4 percent) and Portland, Oregon (22.9 percent).
In some markets, institutional investors are snapping up homes and boxing out first-time buyers, explaining some outsized proportions of cash sales.
Jack McCabe, CEO of McCabe Research and Consulting, recently called the phenomenon the “corporatization of residential America.”
“Hedge funds are all lined up. They’ve got most of the Realtors in their pockets quite honestly,” he said recently, speaking on a panel on single-family rentals at the National Association of Real Estate Editors’ (NAREE) conference in Houston.
Nevertheless, institutional investors have never accounted for more than 8 percent of U.S. home sales, according to Daren Blomquist, vice president at RealtyTrac. In the first quarter, their share of purchases had fallen to 5.6 percent, he said.