March was a bad month for home sales in the Twin Cities housing market, unless you're talking about foreclosures. Sales of homes in foreclosure spiked last month compared to the year before. And investors paying cash are driving a lot of those transactions.
There was a big dropoff last month in the number of homebuyers who didn't want a foreclosure or short sale, according to the latest Twin Cities housing numbers.
The number of signed purchase agreements in March was down. Completed home sales ticked up less than 1 percent, compared to March of last year, when the first-time homebuyer tax credit was still giving the market a lift.
But sales of foreclosures surged roughly 30 percent from last year. And a good chunk of their buyers were investors armed with cash.
"Typically when I purchase homes they're bank-owned foreclosures. They've been neglected in some cases, they were at one point condemned. Many of them need a significant amount of work," said Jennifer Olstad, owner of Tupino, Inc., which stands for "Turning Ugly Properties Into Nice Ones."
In the past year, Olstad has purchased five properties with cash and sold three of them to first-time homebuyers.
Olstad is running a business, but she says part of her motivation for buying these fixer-uppers is to turn around blighted neighborhoods.
"My goal is to really help north Minneapolis pull itself back together, and make sure that it is a desirable place to live," said Olstad. "There's a lot of great homes, there's a lot of great people who live in North Minneapolis. And so my goal is to really make sure that I'm doing my part."
"In many regards, the cash buyers are really angels in our market, because they're coming in and taking a lot of the inventory in our marketplace off the books," said Aaron Dickinson, a realtor with Edina Realty.
Dickinson has been tracking cash buyers at a Twin Cities real estate blog. He says they're responsible for a growing share of home sales. A few years ago, only 3-7 percent of home deals were done with cash. But in February and March, that number was more like 25-30 percent.
"And I look at that as a huge positive, because an investor isn't putting 5 or 10 or 20 percent down on a property. They're betting 100 percent of their money that that property is viable and will be a good investment over the long term," said Dickinson. "When those investors are coming in, I believe it's a good sign that housing is starting to find some stability."
One downside to this picture is that first-time homebuyers can't compete against the investors' cash bids.
In the wake of the foreclosure crisis, which swept up many rental properties, Minneapolis officials said they prefer that people who buy homes in the city also live in them. They said owner-occupants are more connected to the community and have more incentive to keep up the property.
But Ed Nelson at the Minnesota Home Ownership Center isn't too concerned that these cash buyers are just flipping or renting the homes they buy. His organization supports home ownership, but not at all costs.
"In our society now, where we've seen how damaging the foreclosure crisis has been, we need to get to the point where we understand that home ownership is not right for everyone," he said.
In any case, the growing demand from cash buyers is not enough to mop up all the housing inventory that's for sale. Supply and demand are still out of whack.
In March, the Twin Cities market had about seven and a half months of inventory hanging around -- up 17 percent from the same time last year.