The U.S. housing market has seen a major decline in the percentage of buyers paying for homes with cash over the past several years, according to the National Association of Realtors, a sign that investors are being replaced by traditional homebuyers. The net effect should be a stabilizing of the market with more gradual price increases over the long term.
The NAR found that 23 percent of all existing-home sales in July were all-cash sales. And while that figure is up slightly from June’s 22 percent, it is a significant drop from 29 percent the previous year. And sales to individual investors fell to 13 percent from 16 percent in July 2014.
“Housing is successfully transitioning from an investor-driven recovery to one that is drawing in traditional buyers as a good foundation for sustainable growth going forward,” said Daren Blomquist, vice president at foreclosure data tracking firm RealtyTrac.
One reason for the retreat of investors is the rapidly dwindling number of distressed homes on the market. These foreclosures and short sales typically sell at a sizeable discount (17 percent in July), exactly what investors seek. Yet in July sales of distressed properties slipped to just 7 percent of all existing-home sales, down from 8 percent in June and 9 percent the year before.
“Five years ago, distressed sales represented 33 percent of the market in July,” said Chris Polychron, president of the National Association of Realtors. “For many previously distressed homeowners throughout the country, rising home values in recent years have helped recover equity and the vast improvement in several local job markets means fewer are falling behind on their mortgage payments.”
Foreclosure statistics have actually increased in the past few months, but there is an important backstory, according to RealtyTrac’s Blomquist. “The increase in overall foreclosure activity over the last five months has been driven primarily by rapidly rising bank repossessions, which in July reached the highest level since January 2013,” he said. “Meanwhile foreclosure starts in July were at the lowest level since November 2005 — a nearly ten-year low that demonstrates the recent rise in bank repossessions represents banks flushing out old distress rather than new distress being pushed into the pipeline.”
The reduction in foreclosure starts added to the decline in investor purchases is a hopeful indication that the housing market is returning to a more stable balance, one that makes it affordable again for average Americans to buy a home.