What Do Cash Sales Say About The Market?

A blog I follow by Seth Godin recently had a post in which he asks

"Is something important because you measure it, or is it measured because it's important?"  (click here to read Mr. Godin's blog)

The timing of his post was ironic since I've just begun tracking the number of houses in Bend selling for all cash.  So is measuring cash sales and the percentage of the market they represent important?

My thought on breaking out the cash sales is that it would seem to indicate two things:

1. the ease or difficulty with which buyers are able to obtain purchase money loans and,
2. the level of interest among investors for buying properties in Bend.

And comparing the results by quarter over the last several years shows a big change.

For instance, in the 2nd quarter of 2007, near the peak of the market, just 8% of sales were for all cash.  Contrast that with the first three months of 2010, when getting a loan was much more difficult; more than 1 in every 4 sales in the 1st quarter of last year was made to a buyer paying all cash (26.3%).

The percentage of deals being made by investors is more difficult to measure but my gut, and my own business experiences, seem to indicate that investors are taking advantage of today's prices, especially at the lower end of the market.

Take for example a $150,000 house with 3 bedrooms, 2.5 baths and 1767 square feet (the median size for a house at this price over the last 3 months).  Figuring a net annual rental income of $10,500 ($1150 monthly rent less yearly taxes of $2800 and insurance of $500) yields an annual return of 7%, a great return in today's low interest rate environment.

However the cash buyer segment of the market breaks down (cash investors versus home buyers unable to qualify for a mortgage loan), the increase as a percentage of the overall market shows that more people are convinced that now is the time to buy real estate in the Bend area.

Let me know what you think the growth in cash sales indicates in the comments section below.
 

Cash Sales Account For Nearly 1 In 3 Home Sales In Bend

The MLS of Central Oregon now provides data on the financing terms used for all closed sales, thanks to the efforts of yours truly.  I had requested this search feature be added because of a perceived increase in all cash sales.  And those perceptions proved true in February, though not necessarily by as much as I'd expected.

36 of the 111 sales of stick built houses on less than an acre in Bend last month were bought for all cash.  I would think 32% of the total sales selling for cash would represent a big increase from a year ago.  But data in the MLS shows that 30 of the 111 sold in February a year ago were also purchased with all cash (27%).  Nevertheless, the additional 6 cash sales does represent a 20% increase from 2010.

I'll make it a point to regularly track cash sales and share the results here with you.  Let me know if there are any other trends you'd be interested in and I'll try to provide them to you.

Does The Bend Housing Market Now Favor Sellers?

The sales pace in February for single family homes on less than an acre would seem to indicate that sellers are now calling the shots in the Bend housing market.

There were 109 houses sold in February in Bend and 414 finished homes are currently listed for sale, resulting in less than 3.8 months of available inventory.  A market has typically been considered  "balanced," favoring neither buyers nor sellers, when there are about 6 months of inventory available.  But with so many distressed properties and a double digit unemployment rate, how can this be true in Bend today?

One explanation I have is that banks are being very careful in controlling the number of foreclosed homes they list for sale in an effort to avoid flooding the market and driving prices even lower.  And a quick analysis seems to bear that out.

As I write this, only 46 of the 414 currently active single family home listings in Bend are shown to be foreclosures.  That's 11.1% of the market.  But similar bank-owned properties accounted for 43% of homes sold last month!

So while only about 1 in 10 houses for sale in Bend are foreclosures, more than 4 of every 10 sold are bank-owned.  Can and will this trend continue?  Let me know your thoughts by replying in the comments section below.