Finally, I’m hearing it from someone else, that Investors are buying up foreclosure properties for cash. I live this in Real Estate on a daily basis. Good if you’re an Investor, not so good for those trying to sell their homes at reasonable values. I believe it is keeping many trapped between a rock and a hard place. If you would like to get in on Investing, contact me for my skills in helping you get started. I did a study in the Milwaukee Area, and used MLS Statistics to track sales of housing under $100,000 using the type of property (Fannie Mae, Freddie Mac, HUD, etc.) and probability based on how long they were offered to “owner-occupants” only, to determine if they were purchased by investors or owner occupants. My investigation showed that many owner-occupants did take advantage of their exclusive “first right to purchase” period.
A Stunning 60% Of All Home Purchases Are “Cash Only” – A 200% Jump In Five Years
Remember when housing was the primary aspirational asset for a still existent US middle class, to be purchased with some equity down by your average 30 year-old hoping to start a family in his or her brand new home, and, as the name implies, aspire to reach the American dream? Those days are long gone. Back in those days the interest rate on the 10 Year bond mattered as it determined the prevailing marginal affordability of leveraged real estate. That is no longer the case, at least not for about 90% of Americans, because as Goldman shows, while before the great crisis only 20% of home purchases were “all cash”, since then the number has soared threefold, and currently the estimated percentage of cash transactions (by count and amount) has hit a record 60%. In other words, less than half of all home purchases are debt-funded, and thus less than half of all home purchases are actually representative of what middle-class America is doing.
Exhibit 4 shows the estimated cash transactions as percent of total home sales both by transaction count and by transaction dollar amount. Relative to the pre-crisis years, percent cash transactions has risen by about 30 percentage points. This change is broadly in line with the increases suggested by DataQuick data. The 30 percentage point increase in percent cash transactions explains almost the entire decline in the ?mortgage per dollar transaction? series (with the remainder explained by small changes in average LTV ratios per mortgage). We do not have data to assess who these all-cash homebuyers are, but presumably investors who have been purchasing distressed properties and turning them into rental units have played an important role.
The WSJ has a few thoughts to add:
The surprisingly large cash-share of purchases helps to explain why home sales have jumped over the past two years despite more muted increases in broad measures of new mortgage activity, such as the MBA?s mortgage application index.
There?s no exact way to know who is responsible for all of these cash purchases, though they are likely to include some combination of investors, foreign buyers, and wealthy homeowners that don?t want to go through the hassle of getting a mortgage before closing on a sale. Mortgage lending standards have sharply tightened up since the housing bubble, with banks scrutinizing borrowers? tax returns and bank statements to verify their incomes and the source of their down payment.
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