Cash Purchases in California Rise to Record High

By: Tory Barringer, DSNews.com

The number of homes purchased with cash in California reached an all-time high in 2012 as the mortgage environment kept other interested buyers out, according to DataQuick, a real estate information service.

The company’s data shows a total of 145,797 condos and houses were bought without mortgage financing in 2012, up from 125,812 in 2011 (the previous high) and 39,731 in 2007, when the housing market started to deflate.

Percentage-wise, cash purchases accounted for a record 32.4 percent of California’s overall home sales last year, up from 30.4 percent in 2011 and more than double the annual average of 15.6 percent recorded since 1991.

“It’s clear that a lot of today’s housing market recovery is being fueled by people putting their own money into homes. Some cash buying is part of a normal housing market, but we’re at twice that normal rate,” said DataQuick president John Walsh. “There are always some rich people, also buyers from abroad, but in a normal market the biggest single category would be retirees and empty-nesters who are down-sizing. Today, a lot of buyers are chasing what they view as the deal of a lifetime.”

According to Walsh, the increase in cash buying comes from high investor interest, a higher perceived return on investment, and a currently difficult mortgage environment.

“I’m sure a lot of today’s cash buyers would love to take advantage of the current low mortgage interest rates, but since the ‘loans-gone-wild’ days of 2004-2006, the lending pendulum has swung to the opposite end of the spectrum. Even a lot of well-qualified buyers can’t get loans. While the overall market is improving, sales levels are still below average, and prices much closer to the bottom than to the peak,” he said.

Last year saw 447,573 homes sold to all buyers in California—both through loans or cash purchases. While that figure is up from the cyclical low in 2007, 2012’s total was well below the peak of 775,831 sales in 2004 and was 13 percent below the state’s average annual home sales since 1988.

The median price for a California home, whether financed or bought with cash, was $275,000 last year, up 10.0 percent from 2011. Cash buyers paid a median $205,000 last year, up 17.1 percent year-over-year. Buyers who financed with a mortgage paid a median $305,000, up 10.5 percent.

Meanwhile, 2012 also saw more all-cash deals occurring above the $500,000 dollar threshold, while fewer occurred below $100,000. Cash-only purchases of half a million dollars or more rose 35.0 percent year-over-year compared with an 11.2 percent decline in cash purchases below $100,000.

“It’s likely that in the sub-$100,000 market cash-paying investors simply couldn’t find enough homes for sale in that price range,” DataQuick said. “Inventory in affordable neighborhoods has generally been low because foreclosures have slowed, meaning less supply, and many people in these areas still owe more than their homes are worth, hence they can’t sell.”

Investors and vacation-home buyers bought roughly 55 percent of all homes purchased with cash last year. Multi-home buyers (those purchasing two or more properties) accounted for about 28 percent of last year’s cash sales, up from around 24 percent in 2011.

Among the zip codes with at least 100 sales last year, the two with the highest cash purchase rate were in Orange County’s Laguna Woods 92637, with 74.0 percent of the homes going to cash buyers, and Riverside County’s Indian Wells 92210, with 71.6 percent.