O.C. homes draw record waves of cash


February 3rd, 2013

Skepticism can be healthy, especially when it comes to sharp turns in the real estate market.

So 2012’s surprising housing upturn is worth a deeper look.

The folks at DataQuick found a new metric that shows just how different last year was – and in an upbeat way. (Yes, always worry – at first – when you’re told “This time it’s different!”)

The DataQuick crew was searching to find out what the impact of tough lending standards — such as higher downpayment requirements — and the rush of cash buyers meant in terms of the actual dollars bet on local housing.

That is, how much skin did recent buyers have in the game.

What they discovered is remarkable: In 2012, Orange County buyers put $9.06 billion of their own funds into homes — that’s cash spent in no-loan purchases plus downpayments for sales with mortgages.

It’s a collective cash bet 19 percent larger than 2011 — and the highest level of buyer-funds invested in local housing dating back to 1997, the first year studied.

Yes, bigger than the mania days. Yes, last year’s local homebuyers put more cash into Orange County deals than any of the most recent crazy boom years — including the previous peak of $8.71 billion in cash invested in 2005.

DataQuick’s chief number cruncher, John Karevoll, says he was indeed surprised by high level of buyer funds tossed at local real estate, noting that the boom was in part due what he called “a fussy mortgage market.”

“Clearly, a lot of the current housing market recovery is being fueled by people pouring their own money into real estate in record amounts,” Karevoll said. “This is pretty remarkable when you take into account that prices are still closer to the bottom than the peak, and sales volume is still below the 20-year average.”

Some might quibble that this stat may be tweaked by a rush of investors who are seeking homes as rental investments and tight inventories of homes to buy, a shortage that makes shoppers with high levels of cash more desirable to sellers.

Still, this high level of cash put into deals is a clear sign of house shopper confidence in local real estate — even if it’s a bit forced by curious market conditions and skittish lenders.

Yet even if this current class of buyers’ confidence is somewhat misplaced, and the market proves to be weaker than it seems, these new owners clearly have financial durability. On average, 2012 buyers put $263,500 of their own funds into each home purchase. That’s roughly $100,000 more per deal that we saw put down on average at the easy-loan-fueled buying mania in the middle of the last decade.

Or look at the heavy cash flow differently: if Orange County could have the best buying year since 2006 with tough lending restrictions requiring this wave of cash to be deployed — image what the market might look like if lending standards soften to anything near traditional norms.

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