Zillow Report: Dwindling All Cash Purchases Helping to Stabilize

by James F. McClister

Cash is still king, but for how much longer? New Zillow report reveals dwindling all cash purchases in many metro areas.

When the housing bubble collapsed in 2007 and home prices plummeted, forward-thinking investors seized an opportunity to snatch up newly affordable properties, many avoiding the fees and hassle of a middleman by paying in all cash. As the years went on, home prices have gradually risen, and now more and more investors are leaving the market, which is driving down the number of all cash buyers. A recent report from Zillow found that while all cash buyers remain a significant portion of several major markets, all cash purchases fell in most metro areas during the first quarter of 2014 compared to the same time last year.

In Chicagoland, 41 percent of all buyers paid in all cash. However, business buyers, who almost exclusively pay in all cash, are largely driving that number. Zillow reports that all cash sales in the city are fairly evenly distributed between single-family homes (37 percent), condominiums and co-ops (48 percent) and high-end homes (43 percent).

Of the properties purchased by individual buyers, most represent the bottom tier of available homes. Business buyers, on the other hand, are less particular, using cash to make significant purchases of bottom, middle and top tier properties.

More to Know

Zillow’s report offers several unique insights into the Chicagoland market in regards to all cash purchasing. For instance:

  • More than 85 percent of foreclosed properties in the city were bought in all cash.
  • 38 percent of short sales were done in all cash.
  • Only 14 percent of individual buyers who paid in all cash purchased top tier properties.

Approaching a Better Balance

Chicago remains a significant and lucrative hub of all cash buyer activity, but relative to recent years, the number of all cash buyers in the immediate Chicagoland market has dwindled. All cash purchases are down year-over-year five percent.

Stan Humphries, chief economist for Zillow, says that while cash remains “king,” as far as the lower end of the market is concerned, rising home prices are convincing investors to bow out of the market, which is helping to make room for additional buyers who are struggling to find options amongst low inventories.

“Housing is much more than an investment for most buyers, and it’s heartening to see more buyers armed with traditional financing begin to enter the market,” he says. “This is a critical step on the way back to a more normal, balanced housing market.”

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