Investors plunking down cash for homes
Investors paying cash for houses accounted for one in four home sales during the past year in Sacramento County and West Sacramento, becoming dominating players in a distressed market and squeezing out scores of first-time buyers, 2009 statistics now show.
Many of these cash buyers are from the Bay Area. They’ve re-established that region’s traditional link to Sacramento real estate and are scoring houses at up to 10 percent off listing prices, local market participants say.
Buying with cash, says local broker associate Jim Swanson, is another Sacramento “gold rush.”
Carey Covey, a Cook Realty agent in Sacramento, said he recently sold a bank repo to a Sunnyvale investor by phone.
“I never met him. He never saw the property,” Covey said.
He paid $55,000 – in cash.
Cash buys suggest there’s still plenty of money out there despite the bad economy. And it’s flowing into a market where repo prices in 2009 often remained well below $100,000 or even $70,000.
“There are some people who have money in a 401(k) and want to find better use for it,” said Swanson of Prudential California Realty. “I have clients taking cash out of properties they already own and using that money to buy real estate. I have one cash buyer who planned to use loans, but he had plenty of savings.”
Cash buyers can obtain discounts not available to others, and their purchases seldom fall out of escrow. They have pushed aside first-time buyers who can’t compete.
“I have lists and lists and lists of houses I have looked at and put offers on. Everything has been investors, investors, investors,” said Kimii Carter, a city employee in West Sacramento. Carter said she made offers on 30 houses south of downtown Sacramento, including a $145,000 bid on a $114,000 listing she wanted for herself and two daughters.
“They said, ‘We already have a cash offer,’ ” Carter said.
“All the buyers will agree. This is what I’m hearing every day,” said Barbara Rohwer Harsch, president of the Sacramento Association of Realtors.
For months, first-time buyers have complained of losing bidding wars to investors often paying with cash. But now a year of data prove the pattern. Cash buyers were 26.7 percent of January sales in Sacramento County and West Sacramento, according to SAR.
In every month of 2009, cash buyers ranged from 23.7 percent to 27.7 percent of closed escrows, SAR reported. Researchers at La Jolla-based MDA DataQuick, which counts more sales than SAR, says the Sacramento County cash-buy percentage is even higher.
“It’s been in the 27 percent to 32 percent range for the past year,” company analyst Andrew LePage said.
Swanson, researching data from Sacramento’s MetroList Services, said cash buyers accounted for 60 percent of January sales under $100,000 in Sacramento County.
“One of my clients bought five or six last year. Another bought two,” he said. Many are in areas devastated by risky adjustable-rate loans: North and south Sacramento, Del Paso Heights, North Highlands and Rancho Cordova.
Swanson, too, made a cash buy in 2008, paying $38,000 for a two-bedroom, one-bath home in Del Paso Heights. He spent $14,000 on repairs and then rented it out.
Sacramento general contractor Bruce Morse said he bought four houses and a duplex with cash the past two years. Prices ranged from $50,000 to $120,000. Morse repairs, rents and holds, saying, “This is my retirement plan.
“I had cash from a home equity loan and my aunt lent me some money. My dad lent me a little money,” he said.
Morse said paying cash makes it “a little easier dealing with banks. “They just know it’s cash and they don’t have to worry about too much else.”
Analysts have long said banks prefer cash as a quick and easy way to shore up their bottom lines, eroded by defaults across the United States, and particularly in California. Twelve percent of mortgages in Sacramento, Placer, Yolo and El Dorado counties are 90 days behind on payments, somewhere in the foreclosure process or related to a bank repo with a for-sale sign out front, says Orange County analyst First American Core- Logic.
But those not suffering such privations still have plenty of cash, especially in the Bay Area, said Matthew Anderson, partner at Oakland-based Foresight Analytics, a real estate consulting firm.
“In California, 12 percent unemployment means there’s still 88 percent of the work force that have jobs and incomes, and a lot of people still have quite decent incomes,” he said.
A DataQuick survey of second-home purchases by Bay Area investors last July, August and September ranked Sacramento as their top target. Elk Grove ranked 10th behind Las Vegas, Stockton and other Central Valley markets.
Mike Lyon, head of Sacramento’s Lyon Real Estate, estimates that two-thirds of the Sacramento region’s cash buyers are Bay Area investors.
Anderson said investors see this as an “attractive time to be buying, especially if you’re going to turn around and leverage (borrow against) the investment. It’s a cheap time to be borrowing money.”
But that kind of finance is little comfort to buyers like Carter. She’s in escrow on her first house, but it’s smaller than she hoped and not exactly what she wanted.
“I felt I had to take it. It’s my only option,” she said, recounting her many losing bids since November. “It’s really discouraging for somebody trying to buy their first house. It shouldn’t be like this, but it is.”
