After years of stimulating the economy, it looks like investment buyers might be leaving the Inland Empire housing market for now. Of course they will always be around, but with home prices rising, they have done their job of stimulating the Inland Empire’s housing market. Without the constant buying, flipping, selling involved, we might have never recovered. Cash sales accounted for 24% of all single-family home sales in Riverside and San Bernardino counties during August, down four percent year-over-year, according to data released Thursday by Irvine-based CoreLogic. Having a quarter of all sales being cash sales is a large number of cash sales.
To make it simple for the purpose of this blog, cash sales reflect the level of investment buying – meaning someone who buys a home to sell it without intending to live there – because investment buyers are usually the only people who can afford to pay cash for a home. So these homes are bought cash for several reasons. One would be relatives living in the home, another would be to fix the house up and sell it, the other most common reason would be to fix it up and then rent it out to qualified renters. In any of those situations it helps stimulate the economy by having consumers living in a home that would not have otherwise been occupied. The local stores, schools, churches, all become patronized by these people.
Some economists blame investment buyers for artificially driving up the price of homes, which in turn helped contribute to the recession that began in 2008. I don’t see this as being anywhere near the reason that we had such a hard time. Investors were certainly not the reason for this. The reason we had such problems were the banks, not the buying investors, becoming greedy and using unsavory tactics to give out loans. In the long run, they were the ones who paid the price. It wasn’t the cash investors, it was the loaners!
Nationally, cash sales made up 32% all home sales in August, down from 35% in August 2014, CoreLogic reported. This may be because in most parts of the nation, house prices are nowhere near as high as they are in California. Our medians are much higher. Cash sales reached their national peak in January 2011, when they made up 47 %of all home sales in the United States. Before the housing crisis, cash transactions typically accounted for about 25% of all U.S. home sales. At the current pace, cash transaction will likely be back to that level by the middle of 2017.
In conclusion, we need every aspect of the purchase of homes to stimulate the real estate business. All cylinders have to be firing simultaneously. We need people selling homes, we need people buying homes, we need banks loaning money, and we need investors spending cash. Investors are an important and integral part of this market and we should certainly appreciate them. Maybe we should even think about becoming an investor ourselves. It isn’t very often that patience can pay off handsomely in real estate.