A recent article by the WSJ on cash buyers lifting the real estate market said: ”Nationally, 28% of sales were all-cash transactions last year, according to the National Association of Realtors. The rate was 14% in October 2008, when the trade group began tracking the measure.”
Are more cash buyers a sign of a recovering housing market? The article hints more cash buyers are a sign of a housing recovery but there may be a much more plausible explanation for the increase. In many areas home prices are still declining and inventory levels and shadow inventory are high enough to override pressure in the market place that would cause appreciation.
So why all the cash buyers if everyone knows home prices aren’t going up anytime soon? The answer is simple; people still need places to live. If you can’t buy you rent. Investors with cash are turning from real estate flippers to property managers. Homes in many areas are being able to be purchase for prices that will cash flow.
This is especially true for the hard hit areas such as Florida and Phoenix where homes are selling for far under what they were previously. For example: A 50 thousand dollar home with $15 thousand in repairs rented out at $900 a month minus $200 a month tax, $75 a month insurance, and $50 a month repairs = $6,900 a year. Sell it in 5-8 years and you have a nice return.. and one that would easily cash flow a reasonable mortgage as well . What do you think? Cash buyers might be a sign of recovery or it also might be a sign of a great rental market
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I do not think cash buyers are a sign of recovery. Lisa, you make a very good point. So many can argue the other way. But we still have to much inventory that has not yet hit the market that is destressed.
I was surprised at just how many cash buyers our team has been working with until I saw some of the national stats. In Idaho, we have recently experienced one of the nation’s highest foreclosure rates. In the past 6 months I am hearing from more and more investors who are arriving at the same conclusion you came to. These folks have tended to be true investors in that they have no intent to turn over the property for years… and are completely focused on accomplishing a good rate of return and figuring that future appreciation would just be a bonus. The good news is- we are finding those properties now which we have not been able to do for the past 10 years. Maybe that is the start of stabilization.