In many parts of the country, housing prices have returned to pre-recession levels. That’s good news for sellers, bad news for buyers. But buried within the latest housing data is some good news for everyone.
All-cash buyers seem to be finally retreating. The percentage of homes purchased by all-cash buyers in May was close to the long-term average going back to January 2000 of 24.8%, and well below its recent peak of 42.2% in 2011.
It’s one sign that the housing market is on the road back to a normal “How do I find a place to live?” market, and away from the “How do I make a quick buck?” market.
What’s an all-cash buyer? Someone—or something—with a lot of money. All-cash buyers don’t need mortgages, they just show up with a check and buy a home. Generally, they are big investors, like hedge funds and foreign entities, who have no intention of living in the homes. They skew the market by soaking up inventory that could be purchased by a young family looking for a first-time home purchase. They also make other buyers look bad. If you were a seller and had two offers—one all-cash and one that required financing to be arranged—which would you choose?
As housing transitions from an investor-driven, cash-is-king market to one more dependent on traditional buyers, sales volume has been increasing over the last few months and is on track in 2015 to hit the highest level we’ve seen since 2006. The out-of-whack housing market has been suffering from a record level of all-cash buyers for the past several years—well above historical norms, so the retreat of cash buyers is a positive development.
This is a positive as total sales are rising with less cash buyers as a part of the marketplace. … Less cash means more traditional buyers in the system, which means the supply-and-demand balance is more correlated to Main Street economics. Of course, the shrinking number of cash buyers doesn’t mean prices are going down. But with more first-time homebuyers and less inventory, at least the dynamics of home buying might change a bit.
While inventory is tight, many investors have dropped out of the market and cash deals are not as prevalent as they were. Even in multi-offer situations much has been equalized. This is great news for first-time buyers.
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We hope you found the above information insightful. Check back here next time for more valuable information on the current state of the housing market and how it may impact your efforts as a buyer or seller.
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