The other reason investors are buying the foreclosed houses with cash is that they are the only ones with cash to buy them. The ones we have tried to get a mortgage on (3 now) have all fallen apart because they will not lend on houses with the kinds of problems these houses often have, such as structural issues, wet basements, can't pass the well and septic. So you have to pay cash, and accept them as is.
So they are too expensive for regular buyers who want to live in them, who need mortgages. There are many houses sitting out there or going to investors because they are too expensive for cash, but in too poor condition for a mortgage.
And mortgage lenders have become MUCH pickier than they used to be about the house conditions--seriously, we looked at one house for 125k that had sold with a mortgage 4 years ago for 250k, foreclosed on, would no longer qualify for regular financing because of the condition of the house. So there is a sea change in what the banks will lend on these days.