Based on RealtyTrac's Q4 and Year-End 2014 U.S. Institutional Investor & Cash Sales Report, the share of home sales to institutional investors and all-cash buyers dropped to four-year lows in 2014 despite a quarterly increase in the fourth quarter.
A total of 105,278 single family homes were sold to institutional investors -- entities that purchase at least 10 properties in a calendar year -- in 2014, 4.2 percent of all sales and down 31 percent from the 153,450 institutional investor purchases in 2013 to a four-year low. Meanwhile overall sales of single family homes decreased 2 percent between 2013 and 2014.
In the past four years, institutional investors have purchased a total of 528,369 single family homes nationwide, led by Florida (78,155), California (52,802), Georgia (46,914), Arizona (35,979), and North Carolina (34,769).
Institutional investor purchases represented 3.7 percent of all single family home sales in the fourth quarter, up from 3.5 percent of sales in the third quarter but still below the 5.4 percent of all sales in the fourth quarter of 2013.
"While the overall percentage of purchases by institutional investors is nothing to write home about nationwide, the true impact of these investors can be seen more clearly at the hyperlocal level," said Daren Blomquist, vice president at RealtyTrac. "There were 35 zip codes nationwide where at least 50 single family homes were purchased by institutional investors in the fourth quarter, with institutional investor purchases representing from 17 percent to 74 percent of all single family home sales in those zip codes."
"With our limited land and growing population the institutional investors believe our region will outperform the U.S. market," said Mike Pappas, CEO and president of the Keyes Company, covering the South Florida market, where institutional investors accounted for 21 percent of all single family purchases in zip code 33023 in Hollywood, Florida, in the fourth quarter.
"We are seeing a fair amount of deals in the area as this institutional investor money is really becoming a player," said Wesley M. Hardin, owner/broker at RE/MAX Alliance, covering the Denver market, which saw an uptick in institutional investors in the fourth quarter. "In fact, I closed a deal this past Wednesday from a REIT back east. They sent the offer without seeing the home and closed in about 10 days. The title company told me this was their 256th purchase in the metro area in the last 12 months."
All-cash purchases fall below 1 million for first time in three years in 2014
A total of 944,892 single family homes and condos were sold to all-cash buyers in 2014, down 13 percent from the 1,083,169 all-cash sales in 2013 and representing 30.9 percent of all sales during the year -- a four-year low. Overall sales of single family homes and condos combined decreased 2 percent in 2014 compared to 2013.
In the past four years cash buyers have purchased a total of 3,951,798 single family homes and condos nationwide, led by Florida (864,659), California (453,175), Michigan (203,518), Georgia (176,408), and Arizona (170,320).
Cash buyers represented 30.3 of all single family home and condo sales in the fourth quarter, up from 28.5 percent of all sales in the third quarter but still below the 33.9 percent of all sales in the fourth quarter of 2013.
"Cash buyers are still king in Seattle; made up primarily by investors at the low end and international home buyers at the high end," said OB Jacobi, president of Windermere Real Estate, covering the Seattle market," said OB Jacobi, president of Windermere Real Estate, covering the Seattle market, where the share of cash sales and institutional investor purchases increased from the third to fourth quarter. "In Seattle, we are beginning to see institutional investors sell off their properties because of the significant equity they've been able to build over the past few years. On the buying side, there has been a slight shift to smaller, local investors who historically need less upside in a deal to satisfy their requirements."
"Ripe institutional funds, foreign infusion and tougher lending laws increased the use of cash purchases as a percentage of total recovery sales," said Mark Hughes, Chief Operating Officer at First Team Real Estate, covering the Southern California market, where there were 10 zip codes with at least 50 percent cash sales in the fourth quarter, led by 92367 in Laguna Hills, with 73 percent all-cash sales. "It's natural, though, for institutional investors and other cash buyers to slow down after lower price and distressed opportunity-driven activity realizes a more natural pace, which it has. Foreign interest in SoCal new construction is still attracting a lot of cash from places like China."
8 percent of cash buyers in last two years have subsequently taken out mortgage
Nearly 8 percent of U.S. cash buyers took out a subsequent mortgage after the purchase, according to a RealtyTrac analysis of nearly 1.5 million all-cash purchases of single family homes nationwide from January 2013 through December 2014.
On average the original cash purchase prices were 93 percent of the purchased property's full market value, and the subsequent mortgage was recorded an average of 202 days -- nearly seven months -- after the sale.
The county with the highest percentage of cash sales with a subsequent mortgage was San Francisco County, California, where 24 percent of cash buyers took out a subsequent mortgage, followed by Denver County, Colorado (21 percent), Marin County, California (20 percent), and San Mateo and Santa Clara County, both in California and both with 19 percent of cash purchases with subsequent financing.
Metro areas with highest share of institutional investors
Among metropolitan statistical areas with a population of at least 500,000, Memphis, Tennessee posted the highest share of institutional investor purchases of single family homes in the fourth quarter of 2014 -- 18.3 percent -- followed by Charlotte, North Carolina (15.3 percent), Atlanta (11.3 percent), Raleigh, North Carolina (10.5 percent) and Oklahoma City (9.3 percent).
Among these top five markets, Atlanta and Oklahoma City saw a decrease in share from a year ago, but Memphis, Charlotte and Raleigh all saw increasing activity from institutional investors.
Other markets with an increasing share of institutional investor purchases compared to a year ago included Greensboro, North Carolina, Provo and Ogden in Utah, Madison, Wisconsin, and Detroit.
Metro areas with highest share of cash buyers
Among metropolitan statistical areas with a population of at least 500,000, Miami had the highest share of all-cash sales in the fourth quarter of 2014 -- 58.1 percent -- followed by Sarasota-Bradenton-Venice, Florida (54.3 percent), Cape Coral-Fort Myers, Florida (53.9 percent), Tampa (49.0 percent) and Memphis, Tennessee (48.1 percent). Among these top five, only Memphis saw an increase in its all-cash sales share compared to a year ago.
"World money has been pouring into the Miami real estate market," said Pappas of the Keyes Company in South Florida. "The strong cash purchases are a validation of the Miami region as the undisputed capital of Central and South America. Many wealthy overseas individuals purchase properties as a safe haven. The strong dollar enhances their investment against declining valuation of their local currency."
Other markets with an increasing all-cash sales share compared to a year ago included Cincinnati, Oklahoma City, Greensboro, North Carolina, Buffalo, New York, and Philadelphia.