Cash home buyers maintained a strong position during the second quarter, but institutional investors have all but retreated from the seven-county area Tri-Cities area. At the same time, there was a big drop in distressed sales.
According to Attom Data Solutions’ Q2 Home Sales Report, there were 692 local cash sales during Q2. That accounted for 32.6% of sales in the three-county Johnson City Metropolitan Statistical Area (MSA) and 34.6% of all sales in the Kingsport-Bristol MSA. Attom defines a cash sale as a purchase where no loan is recorded at the time of the sale.
The U.S. and Tennessee cash sales benchmarks were: U.S. 25% and Tennessee 33.7%.
Compared to Q2 last year, cash sales declined, and it was especially steep in the Johnson City MSA.
- U.S. – down 7%
- Tennessee – down 2%
- Johnson City MSA – down 15%
- Kingsport-Bristol – down 5%
WHO ARE THESE CASH BUYERS?
Cash sales have been a staple since the Great Recession bottomed out, and it begs the question: Who are these cash buyers. Where did they get their money? And it’s not just a local phenonium. Data from Goldman Sachs tags the share of cash sales as high as 57%. But who are these buyers? Are they all high-end Eastman transfers, new doctors moving to town, refugees from New Jersey or is the all-cash sales trend a money-laundering effort funded by local drug dealers? There’s no hard data to answer that question? But that doesn’t mean it will forever be a mystery. Let’s apply Occam’s razor.
Some of the cash buyers are new residents who arrived cash-rich from the sale of a previous home. But if they were the primary drivers of the trend local officials wouldn’t be wringing their hands over the lack of population growth. And no most are not from the Northeast. Census data show that most of the Tri-Cities residents who are not Tennessee natives relocated from the state in the south. Think Florida.
There’s also the fact that this area had a wealth of retirees or near retirement homeowners who had no mortgage or a decade or so of equity build-up. That makes them cash-rich when they buy a new home. But the influx of new residents and equity-rich locals isn’t enough to explain the 30% or better cash sales for five years.
Enter the investors. They are the most likely driver of the cash sales trend. And there are more investors than the out-of-state investment firms that have taken ownership of some local apartment complexes. We’re talking about mom-and-pop investors who own a couple of rental houses, a cadre of entrepreneurs who buy homes and flip them and the out-of-state investors – some of them in the instructional investor class. A couple years back an analysis from Attom found out-of-state investors own 19,349 (14.7%) of the 131,563 single-family investment properties in the Tri-Cities region of NE Tenn. and SW Va. You can find that report by CLICKING HERE .
GROUND ZERO FOR INVESTORS
Attom’s Q2 analysis doesn’t specify price ranges for cash sales, so a deeper drill-down is not available. However, the Johnson City MSA has the highest median home sales price in the region ($168,400). It has also seen a bigger median sales prices increase this year than its neighbor to the north. And although it defies what some think of the Johnson City metro area marketplace, it had more listing for homes in the $200,000 and below price range than the Kingsport-Bristol metro area so far this year.
Listing in the $200,000 and below price range is a watchpoint because that’s where much of the all-cash transactions occur, and it one of the key factors the area home flippers watch. According to Attom’s most recent flipping report, the median purchase price for a flipped home was $74,000, and the median resale price was $130,400. Flipped homes accounted for 8.1% of all homes sales in the Johnson City MSA in Q1, and they increased by 24% from last year.
WHERE DID THE INSTITUTIONAL INVESTORS GO?
Attom’s report didn’t list the share of purchases by institutional investors for either of the Tri-Cities metro areas in Q2. That doesn’t mean they were not any. It’s simply a matter of there were not enough of them to meet the report’s benchmark of 10 purchases by a non-lending entity during the calendar year. Although there it requires some speculation there’s a good chance some institutional investors were active but not reported due to the division of the region into two metro areas. In 2018 institutional investors accounted for 3.3% of purchases in the Kingsport-Bristol metro area, but sales in the Johnson City metro area didn’t meet the reporting benchmark. Some the lack of information can be blamed on the fact that the Tri-Cities area was split into two MSAs so the area is off the radar of many data collecting efforts and analysis.
DISTRESSED PROPERTY SALES DECLINE
Distressed sales often account for a larger share of cash sales than those that are financed. Attom’s report shows a total of 380 distressed sales in the region during Q2. Of that 115 were REO sales, 107 short sales and 58 were third-partY auction sales.
Distressed sales declined 21.4% from last year in the Johnson City MSA and were down 11.8% in the Kingsport-Bristol MSA. Statewide, distressed sales down 15%. They were 1% lower than last year nationwide.
FHA sales often made to first-time homebuyers or others with a low down payment accounted for 6% of Q2 sales in the Johnson City MSA and 12.3% in Kingsport-Bristol. The actual number of sales to first-timers is likely higher because a large share of home sales in the region are made by the Department of Agriculture and areas eligible for USDA loans include those on the edge of some city limits. USDA officials told local mortgage bankers last month that their loans were down 30% this year. The Tennessee Housing Development Agency is also aggressive in the region with its assistance programs for first-time buyers. On average, the local down payment is 10%.
Categories: REAL ESTATE
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