Investors With Cash Place Downward Pressure on Home Prices

Homebuyers with enough cash in hand to cover their offer price in full are able to bid significantly lower on properties and according to a new industry report released Monday, because they offer a shorter and more reliable closing timeline without the impediments of a mortgage, appaisal, underwriting time, they often win out with that lower bid.

A study found that this low-bid-winning dynamic is particularly true for distressed properties because mortgage servicers selling foreclosed or REO homes generally prefer transactions that can close within 30 days.

The total share of distressed properties in the housing market in December, as represented by the HousingPulse Distressed Property Index (DPI), continued at a high level of 47.2 percent, based on a three month moving average. December marked the 24th month in a row that the DPI has been above 40 percent.

Cash buyers, many of them investors, are putting downward pressure on home prices across the board, according to the HousingPulse Survey.

In December 2011, date collected for the survey shows that the overall proportion of cash buyers in the housing market surged to a record 33.2% up from 29.6% a year earlier.

Among investor homebuyers, however, the proportion of cash buyers was much higher, with 74 percent of investors laying down the money to purchase homes outright last month.

The latest survey results indicate investors accounted for 22.8percent of all home purchase transactions in December 2011, up from 22.2 percent a month earlier.

Despite their relatively small share among homebuyers, investors have an outsize effect on home values because their bids bring down market prices, according to the survey report.

While investor bids may not be the first offers accepted, the report notes that they often end up winning properties after other homebuyers are eliminated because of mortgage approval or timeline problems.

Investors usually offer 10%-20% below list up to a price of $250K. First time homebuyers are offering close to list price as are current homeowners. Investors want a 2-4 week close of escrow. Financing buyers end up with 6-8 weeks plus.

In competitive offer situations, cash offers prevail for the most part because of the common knowledge of lender closing issues. Cash sales can close in 21-30 days. FHA sales close 45 to 60 days.

Article by Carrie Bay DSNEWS.com