A new report from Goldman Sachs estimates that the number and dollar volume of homes purchased with all cash has risen to more than 50 percent nationwide, significantly higher than previous estimates.
The company said the number of all-cash deals hit 57 percent in the first quarter of this year compared with only 19 percent in the first quarter of 2005. Over the same period, the dollar volume of all-cash deals has risen to 56 percent from 33 percent.
The data suggest that the big surge in all-cash deals is happening more at the low end and probably reflects a large number of investors buying cheaper homes in hard-hit areas to rent out.
Goldman researchers said they "backed into" their estimate by combing mortgage origination data from the Mortgage Bankers Association and sales and price data from the Census Bureau and National Association of Realtors.
Because they had to combine different data sources and make certain assumptions, they admit that "the level of our estimates may be inaccurate." But they believe the trend -- a roughly 30 percentage point increase in cash transactions -- reflects reality.
Goldman's estimate that more than half of the homes purchased this year and last were without a mortgage "strikes me as high for the whole country," says Andrew LePage of Dataquick, a real estate tracking firm based in San Diego.
Dataquick estimates all-cash deals by tracking single-family home and condo sales listed in the public record that have no sign of a corresponding purchase loan. It does not include homes purchased in foreclosure auctions.
Although Dataquick has no nationwide numbers, earlier this year it looked at the percentage of homes sold without a mortgage for 53 metro areas in the January-through-April period every year going back to 2005. For these markets, the percentage of all-cash transactions rose to 35.3 percent this year from 18.4 percent in 2005 -- an increase of roughly 17 percentage points.
In only a few markets -- such as Las Vegas and parts of Florida -- did the percentage of homes sold without a mortgage exceed 50 percent this year.
In the San Francisco/Oakland/Fremont area, 30.1 percent of homes were purchased without a mortgage in the first four months of 2013, Dataquick found. "We do show that in the last two or three years, there has been a record number of buyers paying cash," LePage says.
They are believed to include wealthy people who don't need a mortgage, empty-nesters downsizing, investors who might be using other sources of financing (such as lines of credit) and foreign buyers who might be unable to get a mortgage.
The good news for buyers who need a mortgage is that the all-cash trend seems to have peaked earlier this year. Higher home prices and rising mortgage rates will decrease the return on investment in single-family homes, making it easier for owner-occupants to compete.
"In our view, investor activity should slow down as house prices increase and rental yields compress, and banks should be more willing to extend mortgage credit as the housing market recovers and the regulatory landscape becomes less uncertain," the Goldman report says.
It predicts that the percentage of homes purchased with mortgages will reach "more historically normal levels" by 2016.
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