Cash crash: Changes in housing market cause cash offers to plummet
Remember the frenzied housing market during the pandemic, when investors with deep pockets flocked in and bought homes with loads of cash?
Now, things are starting to calm down. A recent Realtor.com report found that cash purchases by investors fell to 64% in the first quarter of 2024. That’s a big change from the second half of 2021, when 69.7% of investors paid cash to win bidding wars, and it’s the lowest percentage of cash buyers since 2008.
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This is great news for the average home buyer. If all-cash offers decline and prices rise, the market may become fairer for the average person. This means more opportunities for buyers who need a mortgage and may put an end to crazy bidding wars.
Despite rising interest rates, the shift toward financing among investors is being driven primarily by the growing dominance of small investors. Small investors, those who have purchased 10 or fewer homes since 2001, accounted for 62.6% of investor purchases in the first quarter, according to Realtor.com. This marks the highest percentage of small investors in the history of the dataset and suggests a significant shift in the investor landscape.
G. Brian Davis, a real estate investor and co-founder of property management software SparkRental, sees the rise in private investors as a positive development.
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“The withdrawal of institutional capital from the single-family home market is a good thing for everyone involved,” Davis said. “It reduces artificial demand among buyers, which relieves some of the upward pressure on prices. It also gives retail investors more room to maneuver.”
Bree Schmidt, owner and managing broker at Second City Real Estate in Chicago, reports that most of her transactions now come from private investors relying on financing rather than cash purchases.
“If an investment property costs $200,000 in your market, you can either buy one with cash or put 20 percent down and buy five properties for the same amount,” Schmidt says. “It makes sense to get the most out of your money and acquire properties that will generate more cash flow through financing.”
The story continues
Lending for a home purchase offers a variety of benefits, including mortgage interest tax deductions, and financial incentives give investors a competitive advantage.
“last year, [Fannie Mae] “We have a program in place that allows people to buy a two- to four-unit property with a 5 percent down payment if they plan to live there for a year,” Schmidt said.
In the Chicago area, house hacking has become a popular strategy among investors, who buy a multi-unit property, often living in one unit and renting out the rest. Once they’ve built up equity and rental income, they typically sell and reinvest the proceeds in another property, repeating the process, Schmidt said.
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This article, “Cash Crash: Cash Offers Plummet as Housing Market Shifts” originally appeared on Benzinga.com.
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