The Stunning History Of "All Cash" Home Purchases In The US

Tyler Durden's picture

Yesterday's news from the NAR that in February all cash transactions accounted for 35% of all existing home purchases, up from 33% in January, not to mention that 73% of speculators paid "all cash", caught some by surprise. But what this data ignores are new home purchases, where while single-family sales have been muted as expected considering the plunge in mortgage applications, multi-family unit growth - where investors hope to play the tail end of the popping rental bubble - has been stunning, and where multi-fam permits have soared to the highest since 2008. So how does the history of "all cash" home purchases in the US look before and after the arrival of the 2008 post-Lehman "New Normal." The answer is shown in the chart below.

This should not come as a surprise to regular readers, who saw this chart, along with our analysis of it last August, as well as the correct forecast that mortgage origination is slamming shut for virtually all financial firms. For those who missed it, here it is again.

* * *

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.

Goldman's take:

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.

Our personal thoughts: just like the stock market has been levitating on zero volume and virtually no broad distribution, so the entire housing market appears to have morphed into a "flip that house" investment vehicle used by the usual suspects (wealthy foreign oligarchs abusing the NAR's anti-money laundering exemption to park their stolen funds in the US, government sponsored firms such as BlackStone using near zero cost REO-to-Rent subsidies, and other 0.01%-ers) who piggyback on cash flows deriving from alternative cheap credit-funded investments and translate their profits into real-estate investments.

It also means that if nobody used leverage (i.e., mortgages) to buy houses before, they certainly won't do it now, all the more so with interest rates soaring and purchase affordability imploding in front of everybody's eyes.

Finally, due to the very thin marginal source of bidside interest (flipper flipping to flipper and so on), it means that most of America has not participated in this mirage "recovery", and all it will take to send the buoyant housing market crashing is for the one marginal buyer to become a seller. What they will next find, is that when dealing with a bidside orderbook that has zero depth, one indeed takes the escalator down from where the lofty heights achieved courtesy of Fed-funded stairs.

* * *

What is the implication of all the above? Simple: anyone hoping that bank profitability will surge on a steepening of the yield curve due to the imputed positive impact to Net Interest Margin will be disappointed for the simple reason that Americans increasingly refuse to borrow, either due to affordability of availability of credit constraints, and thus the borrow credit cheap, lend expensive arb trade for the banks will simply not work. Incidentally we wrote this in August of last year - since then banks have fired tens, if not hundreds of thousands of mortgage originators having arrived at precisely the same conclusion.

Which also means that the only core driver of revenue, in addition to IPO and M&A fees now that bank fixed income and commodity, not to mention FX, flow trading revenues are crashing, was and remains prop trading, courtesy of the $2.7 trillion in excess reserves parked on bank trading books, which continue to be used as generously levered (think 20 times and above) initial margin with which to keep chasing risk higher.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
LawsofPhysics's picture

It nice to be close to the free money spigot.

hedge accordingly.

joego1's picture

You mean the free debt spigot?

DoChenRollingBearing's picture

Were I in the new house market, I would buy small and use as little debt as possible.  SAVING money is more important than keeping up with the Jones...

NoDebt's picture

Finally sold Mom's old house last month.  Took 8 months to get it under contract at a price that was almost $50K under my original ask.  Only all-cash "investors" showed up to make an offer.  No big-boys buying up properties by the dozens- these were individuals who just buy and rent homes.  Period.  Not a single offer (or even a sniff) from anyone who said they wanted to buy the place to live in it.  NOT ONE.

Now, this was not a high-end house.  Just a regular-guy kinda place but in a good school district with low taxes.

I predict what I call "rental ghettos" in the next few years.

MeBizarro's picture

Yup.  This is going to be a notable problem in several cities including Phoenix, Atlanta, and a few other areas and where huge tracts of a select ZIP/RUCA code were acquired by a single large financial institution/owner to rent out properties. 


Billy Sol Estes's picture

It's already happening in Houston's suburbs.

I rent  a 1 story in a culdesac full of rentals, though some own. In the 2.5 years I've lived there I've had 4 different neighbors just to my left and right.

Our current right neighbor is from Idaho where he claimed they lost $400k in equity on their house in the crash so they moved down south (must have been a damn big house though because no house in our neighborhood is worth that much, might have been a stretch). He moved in in October but said he is leaving in the summer to find another house (previous renter shit the bed literally and left food and trash to rot in the Texas summer heat as the power was turned off).

He said while looking for a rental, he offered $10k down in an area nearby for a similar house, $1800 a month at their current house, which paid 4 months rent  +  deposit but they couldn't move in until 1 month. The owner turned them down flat and said he could have someone living in the house next week.

goldinpenguin's picture

Homeowners live differently than renters, it's just human nature, they have"skin in the game", it lifts (or depresses the whole neighborhood)

Single family "buy to rent" schemes are extremely labor intensive (and often confrontational). Individual landlords can make good ROI because their handy man services are "free" , Blackrock will see their ROI evaporate when they have to pay a couple hundred a pop to an endless procession of plumbers and electricians fixing stuff for single moms with a couple kids. Single family rental homes also age rapidly.



unitwar's picture

In the Houston Suburb of Sugar Land, you can't even buy a house with a mortgage.  If you bid on a house with credit, there will be 3 other cash offers from Chinese, who havent' even seen the house in person.  No option, no inspection, cash sight unseen.  My girlfriend is Chinese and just bought another house with cash there.  She owns 4 now.  Poor dumbass American middle class people (soon to be serfs) bid on the house with a mortgage.  Never had a chance.  In China, you are only allowed to buy 2 houses so the Chinese are buying up properties with their savings.  They will rent them but don't even care if they can't rent them and they sit empty.  They see a house as a safe place to park their savings.  Unlike Americans, the Chinese don't trust the stock market.  All of their money goes into houses.  Of course when this whole thing blows out, those houses will only be worth half what they paid.  The bubble in Houston is pricing out normal middle class wage earners.  They have to move to the ghetto or 50 miles outside of town to be able to afford a house with a mortgage.  The cash buyers are all Chinese or private equity.  

pelican's picture

Only for those in the "in club"

IPA's picture

I think it may have been a zh article, but it was talking about the rental limit on neighborhoods before they go to shit, it was like 1/3 or something. 

Theosebes Goodfellow's picture

That may be so, but I think it is more due to the "new" normal. It wasn't like that in neighborhoods in the 1960s & 70s, (i.e, back when the American Dream was alive).

PT's picture

It's a big club and if you aren't in it then you are being repeatedly clobbered by it.

tweedle dee's picture

I agree rental ghetto's where once there

 were nice middle class neighborhoods.

PT's picture

DCRB re " ... use as little debt as possible ..." :

That's exactly what I thought ~ 15 years ago so I bought a pocket of an egg carton when an extra 20 grand would have bought me a cardboard box.  Now to trade in the pocket of the egg carton for a cardboard box would cost me an extra 200 grand.  It seems I also should have entered differing inflation values re real estate vs wages into the equation.  I understand why others don't want to copy me.

Good choice?  Bad choice?  Well, if I had've bought anything more expensive then I might have been homeless by now and I have done one or two things that others don't do, but I can't say I'm better off.

If we ever get hyperinflation then those with the most debt will win.  I wish the system was as simple as you suggest but it is not.  


LawsofPhysics's picture

If you are using freshly printed cash to buy a house, your name is on the title, debt free.

As for the society behind that paper promise (fiat), not so much. 

Nothing changes until this fundamental inequity is addressed.

tick tock...

El Oregonian's picture

It would be better to hedge against the dollar collapse by aquiring wealth through PM's instead of aquiring a fizzing time bomb of debt. Hedge accordingly.

LawsofPhysics's picture

Might be good to have a few homes for your tribe of sharecroppers.

TideFighter's picture

Remodeling our offices-the contractor told me he is busy submitting large houses to be sectioned off into 2-3 condos. Selling to all-cash buyers too. 6,000 square becomes 3-2000 square condos. Interesting. 

cougar_w's picture

It's mostly Chinese hot money. As their own economy has started to implode they are getting themselves and their wealth out of the country and into hard investments in Canada and the US. Not sure it will do them any good, but they might be betting that the US will protect them from Chinese claw-backs to keep the cash in the States.

thinx's picture

Anecdotal, but perhaps more typical than I thought.  Three of my neighbors sold last year - they were all boomers and had been living there about twenty years or more.  The new buyers (young, two-income couples with kids) are first-time buyers who appear to have bought using mortgages.

The sellers of these houses - the boomers - all downsized into much smaller homes, purchased with cash they got for their old house.

Out of a total of six transactions, three were done with mortgages and three were for cash.  In this admittedly miniscule sample set, that is 50%.  If this trend is happening on a wider scale, it might explain some of the increase in cash deals.

Offthebeach's picture

I know of private party mortgages for working stiffs at 10%. Kind of like PayByTheWeek car lots at +30%.

maskone909's picture

I really dont understand why the MSM keeps pumping housig. Dont they understand that there is no market?!? There is no more middle class. The only hope to get the ball rolling is to bring back ninja loans

Cursive's picture


Re the MSM not understanding; you forgot to add "/sarc"

seek's picture

The MSM is working for the banks, hence pumping housing.

maskone909's picture

I get who they are working for... But the banks should know better than most that there is no middle class/no market. Banks number1 client is the fed buying up their treasuries.

Seer's picture

The Easter Islanders continued to build their statues.

The show must go on... (until it doesn't)

SDShack's picture

The lamestream media doesn't serve the middle class. Hasn't for decades. They only pander to the extremes... the elites and the serfs. The lamestream media is nothing but a conglomeration of sycophants. This makes them the perfect tool for TPTB. They pump housing to curry favor with the elites that are using all that stock market profit to buy real assets that are rented to the serfs. This is just wealth redistribution from middle class to elites. It's just another example of what I call the New Feudal World Order. The lamestream media is just the propaganda arm of the new Kings/Queens and their Lords in the security state. Much like the church was the propaganda tool in the dark ages.

Offthebeach's picture

The commercials are the real TV, the actual "show". Every thing else is fluff, a cost. If surgically altered, well spoken Chinese actors could do it, they'd be satellite beamed from a studio in rural goat fuk.
So you get junk. Junk aimed at the low watt, public edgamakated, pink slime mindless pie hole stuffing, Barco l ounger Amerkin.

bigrooster's picture

If there is no more middle class then what are you?  Is everyone here on ZH rich, or poor welfare fucks?  There is still a middle class because everyone that I know that makes over 100k > 200k is doing just fine.

PlusTic's picture

the PE guys have taken over this in single family residential is huge now

Payne's picture

People cashing out of IRAs and other accounts looking for a rate of return over 2%.  They too will get burned.

oak's picture

American realize that house is a place for family to live, not for leverage investment.

JR's picture

There was a time when property was part of the freedom to build your estate – an investment in the future. But the bankers won’t have it.

Your house is not your home or your future, just live in, pay your mortgage, and shut up. Don’t expect to have your labor turned into growth by owning a house and, consequently, beat Fed inflation. Don’t put your saved labor into savings to be zirped.

No. If you really want to invest your money, throw your chips in with the high frequency traders and keep your fingers crossed that you won’t be dot-commed 2000.

Rex Nutting wrote on MarketWatch July 8, 2011:

A lot of people say they are deeply puzzled by the slow recovery in the U.S. economy. They look at the 9+% unemployment rate and the mediocre growth in national output, and they scratch their heads and wonder: Where is the boom that inevitably follows a deep bust, such as we experienced in 2008 and 2009?

“But there is no mystery. What other result would you expect from the financial ruin of the once-great American middle class?

“…if you wanted to focus on just one number that explains why the economy can’t really recover, this is the one: $7.38 trillion.

“That’s the amount of wealth that’s been lost from the bursting of the housing bubble, according to the Federal Reserve’s comprehensive Flow of Funds report. It’s how much homeowners lost when housing prices plunged 30% nationwide. The loss for these homeowners was much greater than 30%, however, because they were heavily leveraged.

Leverage is an amazing thing: When prices go up, the borrower gets all the gains. And when prices go down, the borrower takes all the losses. Some families lost everything when the bubble collapsed, others lost very little. But, on average, American homeowners lost 55% of the wealth in their home…

“Most middle-class families didn’t have much wealth to begin with — about $100,000. For the 22 million families right in the middle of the income distribution (those making between $39,000 and $62,000 before taxes), about 90% of their assets was in the house. Now half of their wealth is gone and it will never come back as long as they live…”

Steve in Greensboro's picture

Ah, yes.  Rex Nutting.  His name says it all.

JR's picture

All what?

What’s wrong with Nutting saying that “of course, rich folk lost lots of wealth during the panic as well.” But, in that ”their wealth is mostly in paper not bricks -– stocks, bonds, mutual funds, life insurance…the rich recovered; the rest of us didn’t”?

OR : “If losing half your meager life savings weren’t bad enough, the middle class has also been falling behind in terms of income for decades. Families in the middle make most of their money the old-fashioned way: Working their fingers to the bone for 40 years for wages and a modest pension"?

THAT: “The middle class has been getting a smaller and smaller share of the pie over the past 40 years"?

AND: “Their wages have been flat after adjusting for inflation. In the late 1960s, the 20% of families right in the middle were earning almost their full share of the pie: they had 17.5% of total income. Their share has been falling steadily ever since. Now, that 20% is earning just 14.6% of all income. Meanwhile, the top 5% captured a growing share, going from 17% in the late 1960s to 22% today (mid-2011)”?


Seer's picture

But, but...  That $7.38 trillion (how in the fuck can that get that precise?) came from the bubble, no?

From whence it started is to where it will go...

JR's picture

Don't you realize that people based their lives, their plans, their borrowing habits, their first home purchases, their upgrades, on rising prices? It''s easy to look back and realize it was a bubble and be critical of the millions whose decisions hung on the advice of the government, the real estate industry and Wall Street--and, the fear of prices going even higher. As such, could someone tell us what's bubbling now and save us from the next calamity?

Thanks. And, oh, FYI:

U.S. Federal Reserve Chairman Alan Greesnpan said in mid-2005 that "at a minimum, there's a little 'froth' (in the U.S. housing market)"

Dr. Bernanke said in 2005: “We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.”

Dr. Bernanke 2007: “It is not the responsibility of the Federal Reserve–nor would it be appropriate–to protect lenders and investors from the consequences of their financial decisions.”

Dr. Bernanke 2008:“The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.” 

Result: The financial crisis of 2007–2012 was related to the bursting of real estate bubbles around the world, which had begun during the 2000s. (Wikipedia)

q99x2's picture

I want more free money, debt I don't care I'll take it. I need more.

madbraz's picture

"interest rates soaring"?  you lost me there.

Tyler Durden's picture

That text was as of last August. What is worse is that now that rates have dropped back to mid-2013 levels, mtg applications are still as muted as before, meaning the situation is even worse, as the demand for mortgages has little to do with the actual 30 Year mtg rate.

maskone909's picture

Ominous. There is no market. Period.

There is no employmnt. Only food stamps, disability, and unemployment.

pelican's picture

Don't forget fire arms.

Offthebeach's picture


Why in the wealthy state of Massachusetts, home of legions of uber bright Harvard/MIT urban planners, economists, social scientists, and other mini-me institutes, we have piles of metropolis thriving on Poverty, Inc. Lawrence, Lowell, Springfield, Brockton, Fall River, New Bedford, Hyannis, Lynn, Holyoke. ......

You get in the right poverty farming racket you can pull in $200k/yr, no heavy lifting.

Eastwood's picture

This will end well.

Kirk2NCC1701's picture

<--- Well, this will end.
<--- This will end well.

pashley1411's picture

The article is correct.   Like most other signs and artifacts of the sheeple-formerly-known-as-the-middle-class, single family mortgages are going the way of the buggy whip.

Slap a couple of the documents in a time capsule.    Late 21st century people will be amazed that anyone other than oligarchs, politicians (i repeat myself) and government entities owned real estate.   How weird.

cougar_w's picture

It's not going to turn out that way. Projections from the recent past into any distant future are useless. Nothing we now know is going forward. I don't know what will replace current expectations, but it will not look familiar to anyone living now.