A growing number of homebuyers are bringing an unusual tactic to the negotiating table: an all-cash offer.
Cash purchases traditionally make up about a quarter of home sales, but they've soared to about 40 percent nationwide, according to the research firm CoreLogic.
And more of these buyers are individuals, not the institutional investors who plunged into the housing market when it collapsed, then pulled back when home prices rose.
Wealthy people, foreigners and retirees are transforming markets across the United States with these all-cash deals, helping make up for an alarming shortage of first-time buyers who are struggling to save for a down payment or qualify for a loan, a cause of grave concern about the long-term health of the market and its prospects for a true recovery.
"It's the investor and the wealthy individual that's keeping the market alive," said Mark Zandi, chief economist at Moody's Analytics. "The wealthy buyers in particular are fully engaged now. The stock market is up and times are good for them."
Tatyana Baytler, a real estate agent at Lagert Real Estate in Rockville, Md., said foreign buyers tend to offer cash in part because they're wealthy, but also because they have not lived in the country and built the credit history needed to secure a mortgage.
"Every fourth client I have now is an all-cash purchaser," said Ms. Baytler, a Russian speaker. "I had a client from Russia in February who purchased a house in Washington, D.C., for $850,000 all cash. They want to leave [Russia] because of political unrest."
John Denninger, a business owner in New York, didn't want to plunk down that kind of cash when he bought a vacation home not far from West Palm Beach, Fla. But he didn't want a mortgage, either, now that he has paid off the loan on his primary residence.
"I've invested wisely all my life and I have a pretty good job, so paying cash for a condominium didn't seem like a stretch," said Mr. Denninger, 55, who bought the condo three years ago for $70,000 and sank an additional $30,000 into upgrades. "I use it quite a bit now, and I never, ever rent it. I keep it to myself."
The potential yield from rents is what attracted investors to the housing sector once the market hit bottom in late 2011. In areas where home prices plunged, investors began snapping up foreclosures and other deeply discounted properties, betting they could rent them for a tidy profit. The buying frenzy helped clear the excess supply of homes on the market and boost prices. It also frustrated first-time buyers who could not compete because their offers included financing contingencies, appraisals and inspections.
That still happens, said Richard Bridges, a real estate agent at ERA Blue Diamond Realty in Woodbridge, Va. Two weeks ago, Mr. Bridges listed a condominium in Woodbridge for a client. Four offers immediately rolled in, all at or above the $160,000 asking price. One was from an investor.
"My client took the cash offer, even though it was lower than the others, to ensure it would close quickly and without problems," Mr. Bridges said.
But with prices on the rise and the foreclosure supply shrinking, investors are starting to retrench. Rental income does not necessarily go up when housing values rise. The largest institutional investors, some of whom bid on hundreds of homes a day, purchased about $400 million worth of homes a month in the first three months of the year, down from $520 million in the same period a year ago, according to a Morgan Stanley report.
Blackstone Group, which has invested $8.6 billion to buy 45,000 homes in the past two years, scaled back its purchases by about 70 percent since last summer, the company said in a statement. It now buys $30 million to $40 million worth of homes a week.
"It's truly a national phenomenon," said Sam Khater, CoreLogic's deputy chief economist. "The share of cash sales is higher than normal in many parts of the country that never had a housing bust, like the rural heartland states of Oklahoma or Missouri."
But all-cash deals do not necessarily mean all cash, even if they're registered that way in the public record. Buyers sometimes tap into alternate forms of financing that count as cash, which is what Lori Pearce did to purchase a condominium in downtown Seattle.
Ms. Pearce, a retiree, already owns a more spacious condo nearby that she's selling. She said she's borrowing against her stock holdings to finance the purchase of the new condo, and she will pay off the loan with the proceeds of the sale from the old unit.
"If you don't have to get a loan, then don't get one," Ms. Pearce said. "But this must be incredibly hard for most buyers."