In another sign that buyers are having an increasingly difficult time getting mortgage financing, nearly one out of three home sales in December went to buyers paid all cash.
In fact, so many investors are winning sales with cash and shorter closing timelines that they can offer lower bids, which may be may be depressing prices, especially on distressed sales, according to the latest Campbell/Inside Mortgage Finance HousingPulse Tracking 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. Some 74 percent of investors used all cash to buy homes last month. 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 or real estate owned 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. Appraisals below the contracted price are a common reason for mortgage denials. Most mortgage financing timelines are now in excess of 30 days.
Real estate agents responding to the survey commented on low bids from investors. “Investors usually offer 10 percent-20 percent below list up to a price of $250K. First time homebuyers are (offering) close to list (price) as are current homeowners. Investors want 2-4 weeks to close …Financing buyers end up with 6- 8 weeks plus to close,” reported an agent in Arizona.
“Investors are very aggressive and expect to see 15 percent-20 percent off list, they will close in 30 days or less and most are cash buyers. First time homebuyers are in a market that sometimes sell for over list price which is difficult ‘at first’ for them to understand,” reinforced another agent in California.
“In competitive offer situations, cash offers prevail for the most part because of the common knowledge of lender closing issues. Cash sales close in 21-30 days. FHA sales close in 45 to 60 days,” reported an agent in New Jersey.
The Campbell/Inside Mortgage Finance HousingPulse Tracking Survey involves approximately 2,500 real estate agents nationwide each month and provides up-to-date intelligence on home sales and mortgage usage patterns.