Tags: cash | home sales | housing market | real estate

Cash Home Sales Soar Across US

By    |   Tuesday, 27 May 2014 12:12 PM

The U.S. housing market is seeing a surge in the proportion of all-cash home sales.

Generally, cash buyers account for approximately a quarter of home sales, but all-cash deals have soared to approximately 40 percent of the market, according to research firm CoreLogic.

At one time, cash buyers were mostly institutional investors. After the financial crisis, housing prices were down as much as 35 percent, according to Bloomberg, and rental demand surged as millions of Americans suffered foreclosure. Institutional investors found the low prices and the returns from rents attractive and were heavy buyers.

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But as home prices are rising and foreclosure supply is shrinking institutional investors are pulling back.

"The wealthy buyers in particular are fully engaged now. The stock market is up and times are good for them," Mark Zandi, chief economist at Moody's Analytics, told The Washington Post.

Some of these cash buyers are seniors who have built up equity and some are individual investors following in the footsteps of the institutional investors. Then too, many are foreigners.

"In Manhattan, you have foreign buyers coming in and using properties as a second, third, fourth or fifth home and hedging risks in their home countries," Chris Mayer, a real estate professor at Columbia University Business School, told Bloomberg.

But the cash deals aren't limited to certain hotspots like New York.

"It's truly a national phenomenon," Sam Khater, CoreLogic's deputy chief economist, told The Post.

"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," Khater noted.

"The increase in all-cash purchases is partly because rates are higher than they were a year ago, so it's made buying with a mortgage more expensive on top of home price increases," Jed Kolko, chief economist at real-estate information service Trulia, told Bloomberg.

Those higher costs coupled with stricter credit requirements mean first-time buyers are still largely absent from the market. It's an issue that some analysts say is problematic.

Whereas cash buyers account for 40 percent of home sales, first time buyers should account for 40 percent. Yet, we're not seeing the first-timers because of mortgage rules, Clifford Rossi, finance professor at the University of Maryland's Robert H. Smith School of Business, told Bloomberg.

"The cash buyers today mean that all is not well in the housing market," he said.

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The U.S. housing market is seeing a surge in the proportion of all-cash home sales.
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Tuesday, 27 May 2014 12:12 PM
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