There are more cash buyers right now. Bottom line. Well, technically. Today let’s unpack the housing market’s cash trend, some myths, and things to watch ahead. This post is designed to scroll by topic or digest slowly.
UPCOMING (PUBLIC) SPEAKING GIGS:
9/26/23 Orangevale MLS Meeting
9/28/23 Yuba City Big Market Update (in Yuba City (details TBD))
10/4/23 KW Sac Metro Big Market Update (register here)
10/6/23 SAR Think Like an Appraiser (TBD)
10/27/23 AI Fall Conference (San Francisco)
CASH PURCHASES HAVE BEEN INCREASING
Ever since mortgage rates shot up in early 2022, we’ve been seeing more cash buyers. The uptick has become very noticeable lately in Sacramento, and probably in other markets too. The percentage of cash buyers this quarter so far is 21% of all sales. That’s nothing compared to 32% in 2012 when investment funds were playing the market like Monopoly, but we are still seeing a growing trend at the moment technically (see below).
BUT THERE’S AN ASTERISK (PLEASE READ)
Yes, there is more cash right now as a percentage of all sales, but it’s not that there are so many cash buyers flooding the market. What I mean is when you look at the number of cash buyers over the years, we aren’t seeing a crazy high level today technically. But what we are seeing is the cash buyers that are here today represent a greater percentage of the sales that are happening (see graph above). Does that make sense? It’s as if buyers who aren’t tied to what happens with mortgage rates are finding it easier to play the game today.
IT’S A CASH SANDWICH
We are seeing more cash at the bottom and more at the top. It’s like a cash sandwich. This is a normal dynamic with more investors purchasing stuff at the lower end and higher-dollar buyers flexing cash at the top. I shared this chart yesterday, and people were blown away at the percentage of cash above $1M, though there is always more cash at higher levels (this percentage is still a little higher than usual though).
Here’s another way to look at the same data. I think this is a cool way to see the trend, but I’m not sold on this image either. Thoughts?
DON’T BLAME INVESTMENT FUNDS
It’s easy to blame the cash trend on investment funds. I can’t tell you how many times I hear people say things like, “Dude, Blackrock and Blackstone are buying everything and destroying the housing market.” Look, I’m not an investment fund fanboy. I’m just saying the stats don’t line up with that narrative. The truth is investment funds are NOT playing a noticeable role in Sacramento region housing market right now. As far as I can tell, Invitation Homes hasn’t purchased anything in Sacramento since last summer.
DON’T BLAME IT ON THE BAY AREA
It’s also easy to blame the local trend on Bay Area buyers, but some recent stats from John Burns Real Estate Consulting suggest Bay Area outbound migration has gone cold, and Sacramento is NOT a hot inbound migration either at the moment. This sort of lines up with the word on the street from what I’m hearing from the real estate community too. Keep in mind this doesn’t mean there are zero Bay Area buyers. It’s just the fire hose of pandemic migration has seemed to turn into a slower drip.
AIM FOR THE MARKET – NOT THE UNICORN
It’s easy to aim for a Bay Area unicorn buyer who is going to drop fat stacks of cash and overpay. My advice? Aim for the market.
IT’S NOT THE iBUYER MODEL
The market shifted last year, and the iBuyer model has suffered. Opendoor currently owns 42 properties in the Sacramento region, and while they look to be trying to turn things around, just over one year ago they owned over 300 units at any given time, so they have really cut back. I would mention other iBuyers, but Zillow, Redfin, and Offerpad all stepped back from the market (failed), so the iBuyer model locally is basically Opendoor.
CASH DOESN’T ALWAYS MEAN INVESTOR
It’s easy to think cash represents only investors, but there are many buyers who purchase owner-occupied units with cash, so cash stats aren’t the end-all solution to determining the number of investors. With that said, in my experience the number of investors is often pretty close to the percentage of cash buyers locally. Here’s a cool tool by Redfin to gauge the percentage of investors in many markets across the country. Their stats show a 17% investor share in Sacramento. Over the years I’ve noticed John Burns Real Estate Consulting tends to show a little bit higher. In short, if someone said we have about 20% investors locally, I wouldn’t bat an eye. That seems legit.
WHERE IS CASH COMING FROM?
Someone asked me where the cash is coming from, but that’s not a question I can answer. The joke on Twitter is that it’s money laundering, but I’ll let you decide on that. Haha. If someone has a way to research this, I’m open ears. By the way, speaking of cleaning money, did you watch Ozark? Loved it.
THERE IS HOPE FOR BUYERS
While cash has been increasing, let’s remember 79% of the market is NOT cash. I think sometimes the narrative is that nobody can compete with cash, but that’s not actually what the stats show. For instance, $400,000 to $500,000 is an incredibly competitive price point in Sacramento County, but only 12.9% of sales were cash in this segment last month. Isn’t that a powerful stat? All I’m saying is we have to let the stats form our narrative instead of imposing a narrative on the market. It’s easy to get clicks and attention when we say “Blackrock is cutting out first-time buyers,” but that’s fake news in the local market.
DOES CASH ALWAYS PAY LESS?
I know this visual is a hot mess, but work with me. Anything above the 0% line went above the original list price last month, and anything below went below. In short, it’s not just one thing with cash buyers. 51% of cash transactions over the past couple of months went below the original asking price, 36.6% went above, and 12.4% sold at exactly the original price. These percentages are a little softer than the rest of the market in terms of going above, so it tells me cash buyers do tend to go a little lower than the entire market. Or maybe they’re getting better deals after properties have been lingering. There are many ways we can look at this. Ultimately, it’s not just one thing. Every escrow has a different story.
CASH BUYERS BID UP IN THE FIRST WEEK
It’s during the first week where cash buyers noticeably go above the original list price. And the longer a property is on the market, the lower it tends to sell when dealing with a cash buyer. But honestly, this trend looks just like the rest of the market, so there isn’t anything different here. What this shows us is cash buyers have to compete with everyone else to get it done. In other words, cash isn’t so strong that it’s somehow exempt from the market trend.
A MISTAKE BY CASH BUYERS
One mistake I see cash buyers make is to think they have so much power since they’re bringing greenbacks to the table. Look, sometimes cash is super convenient or necessary due to condition, but financed deals end up being all cash to the seller after escrow closes. And the vast bulk of the market is financed locally (79% lately). In short, if you’re coming with cash, you still have to compete and make a strong offer in the midst of a market with limited supply.
MORE AFFORDABILITY WILL CHANGE THESE STATS
Affordability improving will lead to be more financed buyers, and that can quickly change the total percentage of cash buyers in the market. For now, we’re in a place where there is a smaller pool of buyers, and a growing percentage of them happen to be cash at the moment. We’re missing nearly 40% of buyers from the pre-pandemic average, which is sobering.
I hope that was helpful. Thanks for being here.
Questions: What are you seeing with cash in real estate right now? Anything to add? I’d love to hear your take.
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Interesting and timely. I put a listing on the market a week ago, 4 of our 11 offers were cash, and none of them were investors. Was a bit of surprise.
Thanks Michael. I appreciate hearing. What price point? And did cash win? (if you can say). Please keep me posted with anything you’re seeing.
You ask, “Where is all the cash coming from?” The U.S. govt recently printed an additional $6T (all-in) and dropped it from a helicopter. Most of that money will end up in the top 10% households, and mostly again in the top 1% households. It’s why we’ve had massive inflation, and why the economy seems so “robust”. It’s easy to live off a debt sugar rush …. until it’s not.
China’s real estate market is largely funded by other nation’s debt (mostly Euro-zone). In July 2023, China’s home values dropped 9%. That’s 9% in one month, not y-o-y. And this Asia trend is accelerating. By 1Q24, 1/3 of China’s homeowners could be unable to pay their mortgage. That looks to me a lot like the build-up to 2008, except in Asia/Europe — which will profoundly impact the global economy. Not to mention the historic levels of global derivative debt that are becoming harder and harder to service.
Enjoy the historic fake debt-liquidity while you can. Watch the inverted yield curve. When it returns to normal, the middle-class is about to get pummeled. I’m thinking 2Q24.
Thanks Josh. I appreciate your commentary. Interesting to hear about China prices. What data source do you use for that? I’ll have to pay closer attention.
Ryan, a great and truthful source for news is The Epoch Times. They shed light on the CCPs dealings within China and around the globe. GREAT weekly print newspaper and their online site as well.
https://www.theepochtimes.com/
Thanks Scott. Isn’t that source heavily slanted with political bias though?
Not sure what you mean. If you want truth in reporting, it’s a great source. If you want a source that strives to uphold the values that made America great, then it’s a great source. I suppose if someone’s ideology is heavily slanted to the far left, then maybe not the source of journalism for them. Take a look for a week and then make an individual choice… 🙂
Thanks Scott. We have to watch bias in any source for sure. I recall this source putting out a documentary about the Califonia exodus that seemed a little sensational at the time. But thanks for the suggestion and the email. I really appreciate you.
Wow Josh, you nailed it on the head! With Evergrande and Country Garden failing in China, that massive real estate bubble they created is imploding, and will certainly have an affect globally. The derivatives and synthetic CDOs has never disappeared since the housing crash… just got relabeled into new creative names.
Yup. An derivatives implosion waiting to happen. But I would avoid “Epoch Times” or any far-left or far-right sources. Stick with low-partisan sources: AP, Reuters, Axios, perhaps WSJ and BBC.
Ryan, Chinese housing data is difficult. The CCP data is always wrong. EU / BIS numbers tell a different story.
https://www.ceicdata.com/en/indicator/china/house-prices-growth
Chinese housing peaked in May 2023 at index 12.532. In July, the index was at 9.257 and the downward slope is accelerating. Chinese real estate equities were down nearly 20% in August, alone,
https://lipperalpha.refinitiv.com/2023/08/chart-of-the-week-property-woes-threaten-chinas-growth/
The specific -9% month-over-month July number came from George Gammon, and I’m not sure where he gets his data.
https://www.bloomberg.com/news/articles/2023-08-16/china-s-housing-slump-is-much-worse-than-official-data-shows#xj4y7vzkg
Fascinating. Thank you. Yeah, I wonder about data transparency in a market like China, and whether stats are public or not too. I’ll check out some of these links. Appreciate it.
I just excepted a cash offer, one of eight. And didn’t suffer too much on the price. Asking was $599.
Thank you Claudia. I appreciate you sharing. And congrats!!
Not a fan of the alternate visual for percent of cash buyers, it’s busy, at least on my phone. I love your analysis of offers over time showing cash buyers go up as the listing ages. That’s a great insight.
Thanks Joe. I’m assuming you’re talking about the stacked visual. Yeah, I’m not sold on it. I like the concept, but maybe it’s the colors that are bothering me. It’s hard to read. I do have a line graph version, but it’s also not the easiest visual in the world. I feel like there is some potential there, so I may see if it resonates or not. So far I’m thinking not. What I might actually need to do is make the visual longer (higher) so the font is easier to read.
Love the charts, especially the Days on Market vs Final Sales Price.
Thanks Gary. I appreciate it. I think that one packs a punch even though it’s a bit of a hot mess. It does get more interesting when we put a neighborhood or smaller dataset on there too. Sometimes different price points can show a different trend too.
I’m curious how many (if any) cash offers are also contingent. I could see a boomer couple with a paid-off house making a cash/contingent offer. It isn’t a “great” offer, since it’ll be dragged out by the second sale, but at least the financing isn’t in question, and under-appraisal isn’t an issue.
Thanks Joda. I wish there was an easy way to track that. I’m not aware of a way to do that. I also wish there was a way to track the exact financing (or cash) in all offers. We only really know the financing of the accepted offer as long as that’s put into MLS.
Realist tracks whether a home is purchased by a mortgage. It might be hard to add to your data though.
Thanks Joe. Yeah, difficult. On a related note, it would be worth tracking off-market transactions too. I’d love to see ten years or more of the trend to see if what we’re seeing today is heightened (it seems like it from stories from the trenches, but I always want to see stats).
Two months ago, I represented a buyer who was all cash coming from San Francisco after 50 years living there. So, pure equity.
My current listing is an off-market sale, and the buyers are also cash from the Bay Area (Scott’s Valley area) – they previously sold their home out there and are sitting on the cash equity for the purchase.
Thank you Scott. I appreciate you sharing. And case-in-point. Bay Area buyers are still here. They will always be here. It’s just very unlikely the trend is what it was in 2021. I even see a change today in the size of homes selling compared to a huge spike during portions of 2020 and 2021. I think as people could work from home, migrate, and take advantage of 3% rates, they were buying more expensive (and larger homes). Seems that pandemic rush to the market has faded.
Have a cash buyer for a SFR listing… First time homebuyers, getting the money from family.
Thank you for sharing Dory. Nice for the buyer. It reminds me of the “nepo buyer” narrative right now where people are talking about buyers receiving money from family members. I believe Redfin did a piece on this. It’s a riff off of talk about nepotism in Hollywood I believe (“nepo baby”).
Hello Ryan, okay so here is my rant.
You are correct Blackstone doesn’t own the homes themselves. They just have 24 million shares of a company identified as American Homes 4 Rent. Currently at $36.61/share that is a book value of $ 878,640,000 for Blackstone. Now that ain’t nothing to sneeze at, especially since they started acquiring the stock at around $18/share.
American Homes 4 Rent owns 59,000 SFR’s.
Invitation Homes owns 80,000 SFR’s.
Tricon Residential out of Canada owns 30,000 SFR in the US (they are out of Canada).
Pretium Partners owns 17,000 SFR’s,
Cerberus Capital Mtg, owns 18,000 SFR’s,
Starwood Waypoint Residential Trust, owns 30,000 SFR’s.
Havenbrook Homes owned by Morgan Stanley, 11,000 SFR’s.
Main Street Renewal, owns 14,000 homes
Amherst Holdings owns 34,000 SFR.
Silver Bay Realty Trust, owns 10,000 SFR’s
Colony American Homes, owns 20,000 SFR’s
Treehouse Real Estate Investment Trust owns 14,000 SFR’s.
Now I may not be good at math but that totals about 337,000 SFR’s owned by someone other than a guy with a cowboy hat or someone who had to stop drinking the fancy drinks at Starbucks. I have another list of 12 or so that own another 149,000 SFR’s so that would be 24 companies owning over 480,000 SFR’s.
Now compare that with 90 to 100 million units in the US and it is under 1% of the total inventory. I get that. But if you look at annual sales over the last 20 years you see about 4.9 to 5.5 million units sold per year. Now that equates to about 7 to 9% of the total sales on an annual basis. I realize that not all of those 487,000 units would sell in a year, but it does present an interesting topic about homeownership in America. And NO I am not making a political point, just that within 24 companies they own 486,000 units. Now something ain’t right in my book, but it does show that owning RE can be beneficial. Okay off my soapbox, but I know you like data so there is some data, willing to bet there are more companies out there than these 24 who have big portfolios. But you have to admit 24 companies with 486,000 SFR’s can be an indicator that everything is NOT right where it should be for a market that is struggling for inventory. Now also I realize these aren’t exact numbers, but they show a general trend that there is some inventory issues and I wonder if some it might not be these firms that do buy up SFR’s from resell or new home builders.
Okay done with my rant. Back to writing my unusual litigation consulting report. Whew I am worn out after all that stuff…….
This is great. Thanks Brad. Yeah, it’s no joke. I think Wall Street invading Main Street is a massive trend to watch, but it’s also not a driving force in today’s market. This is very unlikely a good thing for consumers to see big investment funds own hundreds of thousands of units. All I’m saying is we need to keep the narrative in check because people end up perpetuating the idea that these funds are buying everything in sight, which isn’t true in today’s market. They are still buying in some markets for sure, but they’ve really tightened up their acquisitions lately. Not buying in Sacramento, and I suspect not buying in most areas of California. Thanks again. And good luck on your litigation assignment.