Did you like math class as a kid? Or were you more of a literary buff or science geek? I was the type of kid who had a love-hate relationship with math depending on what we were learning and who my teacher was. Honestly though, I often wondered then how numbers or theories could really be used in the real world.
Today let’s look at some stats that are bound to leave an impression – even if you don’t like numbers. Let’s check out the amount of cash in the Sacramento real estate market under $200,000.
Did you know that 50% of all sales in Sacramento County under $200,000 have been cash purchases for about eight months now? How does that strike you? If you’re like most people when hearing numbers like this, it’s astounding. This is only for detached units too. When we include condos and attached units in this figure, we see the percentage increase to 53.12%. Sacramento County has a much stronger cash presence than Placer and Yolo County. For reference, there were thousands of sales under $200,000 in Sacramento County over the past 60 days, but only 80 in Placer County (so take Placer County stats over these past two months with a grain of salt).
The turning point in terms of cash purchases really began in early 2012 as news of the bottom of the market hit and foreclosures began to dry up. But then it went to a whole different level when investors like the private equity fund Blackstone made a very strong entrance in August 2012 by purchasing over 1100 properties in eight months in Sacramento County.
Why does the $200,000 price level matter? This is important because the median sales price is barely above $200,000 in Sacramento County. Remember, the median price is the one in the middle, which essentially means half the sales in the county are above $200,000 while the other half of sales are below that level. Since cash purchases are basically driving the market under $200,000, it tends to have an impact on the entire market by boosting overall numbers. Additionally, one of the byproducts of enormous cash percentages is a decline in FHA loans, which makes it more challenging for many would-be owner occupants.
Question: Did you like math as a kid? How do these numbers strike you? Share them with someone today to see what type of response you get.
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sandy duncan says
Hi Ryan, yes the number of single family homes being bought by cash buyers is indeed astounding. I’m curious why these cash buyers (I’m assuming at least half of them are large investors and not single families or individual buyers) waited so long to start buying homes under 200k. If they are indeed large investors it would seem reasonable that they would have bought those homes when the housing market was at its lowest point and the purchase price would have been lower. Any explanation for this? After all it has been reported that large US financial institutions have been sitting on large sums of cash for several years since the recession, so it would seem that they had the money to buy and buy big years ago. The only explanation I can think of is that large investors were also uncertain and concerned that the housing market would drop even lower or they were uncertain about the country’s economic future due to Obama’s promise that there would be some kind of hike in taxes and Washington grid lock left too much financial uncertainty. So perhaps large investors held off buying rapidly and in bulk.
And what are these cash investors doing with the homes? Are they quickly putting them back on the housing market for purchase or are they renting most of them? I’ve read that the California rental market has increased dramatically. Again thanks. Your info is always some of the best and most accurate out there. Sandy 🙂
Ryan Lundquist says
Hi Sandy. Thank you so much for your comment. You asked some great question.
The reason why investors did not start purchasing in bulk several years ago is because property values were still declining. In fact, since the market has increased, values are right now back to 2009 levels, which shows they were definitely declining over the past few years. The market really hit bottom in early 2012, and when that happened, it brought out lots of cash. Purchasing in mass levels is pretty risky when values are declining, so I think some big-time investors waited until the economy and local housing market improved to a reasonable level.
There is really a wide variety of investors ranging from first-time single purchase types to mom-and-pop flippers to more established companies and institutions. Some of the cash is of course money from owner occupants, but the most significant percentage is surely from investors either flipping or holding the properties. What are they doing with the homes? It really depends. The flipper fixes and then flips to someone else, others rent the properties out long-term, and others will rent and eventually sell them years down the road. The only investors who are putting the properties back on the market quickly are flippers who usually buy low, fix and then make a profit at a higher dollar.
Regarding rents, I just read some stats from Trulia today that shows rents are lagging behind the increase of values. Essentially values are increasing at more dramatic rates than rents are increasing (but at some price levels it is still cheaper to own than rent, which shows there is room for the market to correct). This may not be true in every area of course, but according to the stats it seems evident in Sacramento. I think that makes sense too from what I have heard from property managers and really just a general knowledge of the economy here. We’re seeing some improvement, but Sac County unemployment is still at 8.3%. http://info.trulia.com/trulia-price-and-rent-monitors-apr-2013
I hope that wasn’t too long. 🙂 I enjoy these conversations. Feel free to pitch in your two cents if you’d like.
Ryan Lundquist says
And thank you for your kind words (last sentence). I do appreciate that.