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Institutional Investors Slightly Less Active

money-four [1]The percentage of all-cash sales remained unchanged from September to October but was down by 3 percentage points over the year, and the share of homes purchased by institutional investors dropped right along with it, according to data released on Monday by the National Association of Realtors (NAR [2]).

NAR’s October 2015 Existing-Home Sales [3] report showed that all-cash sales accounted for slightly less than one-quarter of all residential home sales (24 percent) in October. Institutional investors purchased 13 percent of those homes during the month, which is down by 2 percentage points from October 2014. Institutional investors typically account for much of the cash sales share; in October, 62 percent of investors paid cash for a home, according to NAR.

REO properties sold for an average discount of 18 percent below market value in October, which was a slight increase from 17 percent in September. Short sales were discounted much less in October compared to the previous month, however (19 percent in September down to 8 percent in October).

While those numbers have consistently been on the decline year-over-year since peaking in 2010, they are still well above pre-crisis levels. Investors looking to snap up distressed inventory at a low price or otherwise discounted housing from an already low supply might make things more difficult for first-time homebuyers, according to NAR Chief Economist Lawrence Yun.

"All-cash and investor sales are still somewhat elevated historically despite the diminishing number of distressed properties," Yun said. "With supply already meager at the lower-end of the price range, competition from these buyers only adds to the list of obstacles in the path for first-time buyers trying to reach the market."

"All-cash and investor sales are still somewhat elevated historically despite the diminishing number of distressed properties."

Lawrence Yun, Chief Economist, NAR

The share of distressed residential home sales, comprised of REO and short sales, dropped to 6 percent in October, which is the lowest level since NAR began reporting the data in October 2008. October’s distressed sales share is a drop of one-third from October 2014, when the share was 9 percent. Inside the distressed category, 5 percent of all residential home sales were foreclosures or REO properties in October, while 1 percent of them were short sales.

11-23 NAR graph [4]

Overall, the annual sales pace of existing homes cooled in October by 3.4 percent from September, down from 5.55 million to 5.36 million. October's sales pace was still ahead of October 2014's rate of 5.16 million by 3.9 percent despite the month-over-month decline.