Cash Buyers Still Rule – What’s Going on with Housing?
For several years now cash buyers have represented around 30% or more of all home purchases. These were mostly investors of course. Now a new report from RealtyTrac states that during the first three months of 2014, cash sales made up 43% of all sales, up 19% from a year earlier. The two main contributing factors are reported to be tough mortgage rules and intense buyer competition.
What isn’t cited as a factor is something that’s probably more important. Home sales have really slowed in the previous quarter. Since cash investor buyers are still competing for the inventory, and it’s risen to more normal six month supply levels, we see that the majority of buying is cash investors. Assuming that rising prices is all good, we could be missing the fact that fewer people are listing their homes for sale, fewer retail buyers are purchasing with mortgages, and investors are still scooping up the bargains. This doesn’t make a strong market.
Some retail buyers who would normally use a mortgage are making cash offers to better compete for the better deals. They are using alternative funding, so the numbers are tough to interpret and break out retail from investment cash buyers.
What isn’t happening is normal rates of household formation. Millennials are moving back in with their parents, and some readily admit that they plan on staying for quite a while. They can’t afford to buy, and many can’t afford to rent either, as they are burdened with massive student debt. This group is leasing nice cars and eating out, but they are parking the cars in their parents’ driveways.
This may sound like disappointing news for rental investors, but really things are still rocking along pretty well. It’s fine to live at home with Mom and Dad, but when marriage and kids come along, it’s out into the rental market for most of these at-home Millennials. Things will settle down as far as cash buying when bargain inventories start shrinking. However, this won’t spur retail buyers much. Renting is going to remain the norm for quite some time we think.
For several years now cash buyers have represented around 30% or more of all home purchases. These were mostly investors of course. Now a new report from RealtyTrac states that during the first three months of 2014, cash sales made up 43% of all sales, up 19% from a year earlier. The two main contributing factors are reported to be tough mortgage rules and intense buyer competition.
What isn’t cited as a factor is something that’s probably more important. Home sales have really slowed in the previous quarter. Since cash investor buyers are still competing for the inventory, and it’s risen to more normal six month supply levels, we see that the majority of buying is cash investors. Assuming that rising prices is all good, we could be missing the fact that fewer people are listing their homes for sale, fewer retail buyers are purchasing with mortgages, and investors are still scooping up the bargains. This doesn’t make a strong market.
Some retail buyers who would normally use a mortgage are making cash offers to better compete for the better deals. They are using alternative funding, so the numbers are tough to interpret and break out retail from investment cash buyers.
What isn’t happening is normal rates of household formation. Millennials are moving back in with their parents, and some readily admit that they plan on staying for quite a while. They can’t afford to buy, and many can’t afford to rent either, as they are burdened with massive student debt. This group is leasing nice cars and eating out, but they are parking the cars in their parents’ driveways.
This may sound like disappointing news for rental investors, but really things are still rocking along pretty well. It’s fine to live at home with Mom and Dad, but when marriage and kids come along, it’s out into the rental market for most of these at-home Millennials. Things will settle down as far as cash buying when bargain inventories start shrinking. However, this won’t spur retail buyers much. Renting is going to remain the norm for quite some time we think.