All-Cash Home Buyers Hurt Values for Owner-Occupants

There's no denying that all-cash buyers are a force to reckon with in America's neighborhoods. All-cash buyers have come to account for roughly one-fourth of the housing market.

According the National Association of Realtors' most recent Realtors Confidence Index: as of March 2010, all-cash buys accounted for 27 percent of the market -- nearly double the percentage (15 percent) during the same month in 2009.

When it comes to deal-making, cash buyers have the advantage of no financing contingencies in their offers. That can trump regular borrowers, who might have frail loan commitments from battered and fickle lenders.

Cash buyers are very successful at snagging distressed and auctioned properties, where banks and builders selling homes are eager to offload money-losing property to sure-bet buyers.

But are all-cash buyers ultimately good for the communities they buy into?

Alas, "cash buyer" is often code for "investor." While some might argue that investors who take foreclosed inventory off the banks' books are doing the economy a favor, Jim Park of New Vista Asset Management argues otherwise.

Regarding efforts to make it easier for would-be homeowners to plunge into a chilly market: Park says that when it's easy for investors to snap up foreclosures, there is a threat to owner-occupancy. And that makes it tough for communities to regain lost property values and rebuild their neighborhoods.

How are new rules from HUD, Freddie Mac, Fannie Mae, and others -- with respect to distressed properties -- acknowledging the relevance of the owner-occupant in real estate's recovery?

In a few ways: Some properties now carry a 15-day waiting period before investors can bid on them. And some property auctions are now off-limits to investors, a practice which Park notes is new in hard-hit markets such as Phoenix, Las Vegas, and the Inland Empire of California.

Not surprisingly, some of the hardest-hit markets are seeing high proportions of cash buying.

Cash buys have accounted for more than 40 percent of the Las Vegas market in recent months, according to The Las Vegas Sun. In Southern California, cash buys accounted for roughly 27 percent of the market in recent months.

But if Park of New Vista is right, and more is underway to spur primary owners to buy, those numbers soon may fall. That's good news for any neighborhood looking improve its real estate profile -- and for any would-be homeowner relying on financing to buy a dream home.
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