My column yesterday mentioned that cash sales represent an increasing share of U.S. home purchases: About 4 of every 10 homes sold in the first quarter of this year were bought entirely with cash, according to RealtyTrac.
For a while it looked like bargain-basement-priced foreclosures and cash-rich investors were driving these mortgage-free transactions. More recently, though, foreclosures have been falling, and the share of homes purchased by institutional investors — which RealtyTrac has defined as “entities that have purchased at least 10 properties in a calendar year ” — has also declined. Today, the main reasons for the high proportion of cash sales are probably continued tight credit and low inventories of homes up for sale. If you want to successfully bid on a home before another buyer does, in a lot of markets you basically have to offer cash upfront.
In some markets, in fact, more than half of homes purchased last quarter were bought in all-cash deals, including Miami, Detroit, Atlanta, Las Vegas and New York.
I asked RealtyTrac to send me more of their data on cash-only sales, and I was amazed to see exactly how many homes in New York (especially Manhattan) are bought in cash:
In Manhattan, 8 in 10 homes were purchased entirely with cash in the last three quarters. On its face this seems sort of absurd, given how expensive Manhattan housing is, and how cheap credit remains for the types of buyers who can afford to live in these homes.
I asked Daren Blomquist, vice president at RealtyTrac, why Manhattan might be such an outlier. He theorized that the high share of cash sales in Manhattan might be driven partly by wealthy foreign buyers who (like other absentee owners) see Manhattan real estate as a sort of trophy prize. There are more hurdles for these buyers to get a mortgage, and besides, foreign buyers might be looking for a relatively safe way to park their cash rather than more ways to leverage it. Perhaps a Central Park South pied-à-terre looks like a better haven for their savings than a bank in their home country.