"All Is Not Well In The Housing Market" As All Cash Buyers Double In Past Year, Hit Record High

Tyler Durden's picture

Confirming and continuing a trend we first described a year ago, overnight RealtyTrac reported, as part of its Q1 institutional investor and cash sales report, that the percentage of all-cash buyers has soared in the past year with "42.7% of all U.S. residential property sales in the first quarter were all-cash purchases, up from 37.8% in the previous quarter and up from 19.1% in the first quarter of 2013 to the highest level since RealtyTrac began tracking all-cash purchases in the first quarter of 2011."

Curiously this is happening as institutional investors, think Blackstone, are slowly exiting the market: "Institutional investors — entities that have purchased at least 10 properties in a calendar year — accounted for 5.6 percent of all U.S. residential sales in the first quarter, down from 6.8 percent in the fourth quarter of 2013 and down from 7.0 percent in the first quarter of 2013 to the lowest level since the first quarter of 2012."

“Strict lending standards combined with low inventory continue to give the advantage to investors and other cash buyers in this housing market,” said Daren Blomquist, vice president at RealtyTrac. “The good news is that as institutional investors pull back their purchasing in many markets across the country, there is still strong demand from other cash buyers — including individual investors, second-home buyers and even owner-occupant buyers — to fill the vacuum of demand left by institutional investors.

 

“While the institutional investor purchase share declined in the first quarter in 18 of the top 20 markets for institutional investor share a year ago, home prices continued to appreciate in most of those markets, albeit at a slower pace in many cases,” Blomquist continued. “There are a couple notable exceptions that could be cause for concern: Jacksonville, Fla., where the institutional investor share of purchases was down to 13.5 percent in the first quarter compared to 18 percent a year ago and where median home prices decreased 1 percent from a year ago in March after 15 consecutive months of annual increases; and Greensboro, N.C., where the institutional investor of purchases was down to 6.4 percent in the first quarter compared to 10 percent a year ago and where median home prices decreased 8 percent from a year ago in March following 14 of 16 months were median home prices increased annually.”

Or, in other words, the smart money is fading the market as the last flippers scramble to pick up the pieces. And while one can debate the mix composition and what it means for future trends, one thing is clear. Via Bloomberg:

The cash buyers today mean that all is not well in the housing market,” said Clifford Rossi, finance professor at the University of Maryland’s Robert H. Smith School of Business. “First-time home buyers should make up 40 percent and we’re not seeing it because of mortgage rules.”

Actually we're not seeing it because US consumers are unable to chase home prices into the stratosphere and instead have opted to rent, as all the recent data has confirmed, and as even Jeffrey Gundlach confirmed recently with his bearish call on housing.

However, while the market reserved for the US middle class is floundering, one segment is still vibrant - that segment which allowed foreigners to launder their money with US real estate.

“In Manhattan, you have foreign buyers coming in and using properties as a second, third, fourth or fifth home and hedging risks in their home countries,” said Chris Mayer, a real estate professor at Columbia University Business School in New York.

And as long as the NAR continues to be exempt from anti-money laundering requirements, as Zero Hedge also described well over a year ago, this explicit money laundering will continue unabated. Them, and hedge fund managers still riding on the wave of Fed generosity of course:

In Manhattan, buyers are using cash for trophy apartments and to gain an advantage over borrowers who must depend on loans to finance a purchase. Pej Barlavi, owner of brokerage Barlavi Realty LLC in Manhattan, said three of his five current clients buying homes prevailed with all-cash offers.

 

Barlavi said two of them are hedge fund managers who used year-end bonuses to buy the properties: a $2.2 million two-bedroom apartment in Midtown, selling for $150,000 above the asking price; and $1.5 million for a one-bedroom in Tribeca. His client in the second transaction was “nudged higher by a foreign buyer” before being chosen by the seller, Barlavi said.

Bottom line: in the Miami area, 67.1 percent of sales were cash deals; New York posted 57 percent; Detroit recorded 53.5 percent; Atlanta had 53.2 percent, and Las Vegas posted 52.2 percent.

Needless to add, with risk momentum still up as the global central banks continue to pump liquidity into the system at an unprecedented pace, the trajectory of all cash transactions will keep rising until inevitably it approaches 100%, if not for the entire country, then certainly for the abovementioned key markets. At that point, US housing will be nothing but a flippers game as the ultra-rich merely flip properties from and to each other at an ever faster pace.

Just like stocks.

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GVB's picture

Hard assets my friend.

MillionDollarBogus_'s picture

Paying cash for property lessens the potential for a bad loan default.  

How can that be a problem..??

I call cash buying a solution.

i_call_you_my_base's picture

Unfortunately there is no one to live in those houses.

BennyBoy's picture

Buying houses with cash = Money laundering 

Harbanger's picture

Actually in most of the 3rd world, property is bought with cash as bank loans are simply not available.

thamnosma's picture

So?  That's a meaningless comment as prices would adjust what can be afforded under that scenario or there would be no market.

Harbanger's picture

If people are buying with cash then that's the market right now.  Mortgages are getting hard to come by, maybe they will go back to subprime lending again but that's not the case right now.  Why would a bank want to loan you money long term with the current low interest rate?

i_call_you_my_base's picture

See my comment above. "People" are not buying houses with cash now. Investors are. The problem is that there is no end buyer with an intent to live in the place and at the purchase price no one can afford to rent it. Who's going to rent a house for $5000 / mo? No one. I guess it's slightly better in that there won't be defaults, but the losses will just be eaten by the investor.

Harbanger's picture

These people you call investors must be fools then.  It's their money and their losses as they cannot be bailed out like a bank, so I don't see the problem.

Raymond K Hessel's picture

Is there an offset from 401K distributions?  Meaning, are people using their 401Ks to bankroll property purchases? If so, this is good news because the economy is deleveraging away from paper assets to real assets without having to borrow (thus creating a new paper asset, the note).

imapopulistnow's picture

QE lifts equity values.  Rich people convert some of their stock into cash and buy real estate.  It is one of the transmission mechanisms for QE.

pig lipstick's picture

I really dont understand articles like this because they fail to draw a credible conclusion. Obviously, we are to read this article and draw conclusion that "cash buyers are BAD."  But WHY are they bad?

WHY is it bad that Foriegn Investors are voting with their hard earned dollars that they have faith in the USA versus their own country, or another?

WHY is it bad that people with cash/money want to buy an asset class?  Isn't this instead a confirmation on other articles that claim stock market valuations are too high?  These people are voting along with ZH in agreement every time they purchase a property.

Who are we to judge what those with cash do with their money?  It's almost like these people are being portrayed as "stupid."  Let me ask you this:  They HAVE money, so are we saying that they are not as smart as those that do not? 

The FED has FORCED this hand.  It's not "flippers!"  It's not "stupid" money!  It's not "evil corporations." It's not crazy foreigners "stealing your property!"

The fact is this:  People with cash need a place to park their money and they can't do that in paper because of ZIRP and a manipulated stock market.  This is by design.

BLAME THE FED, NOT THE SQUIRRELS JUST TRYING TO GET A NUT!

 

 

 

 

 

 

 

 

Texas Ginslinger's picture

Paying cash is bad because the USA economy is designed to be fueled by debt.

Banks collect interest on money they lend, which is created by a Federal Reserve mouse click.

If consumers don't borrow money from banks, their profits suffer.

Credit card companies have a term for folks who never carry a debt balance - deadbeats.

Anyone who is debt free and stays that way is an enemy of the economy, in the eyes of the Fed and big banks.

 

 

oooBooo's picture

What happens when everyone who wants to invest in a house has too many?

Houses require care and even worse owning them is taxed.

Without renting them there is a finate number that can be purchased for investment by anyone because of the on-going costs.

When the cash stops buying houses, what happens to the prices?

The prices start falling such that non-investors can afford them.

Or what happens when the supply of houses is largely in the hands of investors? 

The only price support then becomes investors trading them amongst themselves.

That's where the problem is, not so much cash sales.

daveO's picture

Corporate money's different. The bosses get paid just like the CEO of Citi. 

Georgia_Boy's picture

From CNN/Money:  "In California, Chinese nationals and immigrants are "parking their cash in single-family homes," said Meyers [Jeff Meyers, founder of Meyers Research]. In Irvine, Calif., for example, 80% of sales over the past year were to Chinese buyers, he said."

That should help put to rest the doubts about whether Chinese or other foreign money could be distorting housing prices here.  And if a chinese guy comes along and offers me 50% over market to buy my house, I'm taking it!

Confused's picture

Let me get this straight. Foreigners are buying houses. In cash. No worries from banks for money laundering. I move $2,500 overseas and all my shit gets flagged for money laundering? 

 

Seems to fit in with the fairness doctrine I keep hearing so much about. 

Harbanger's picture

"No worries from banks for money laundering."

Banks don't care about money laundering, it's the IRS that makes them flag your money transfers.  They care about where your money is going.  When these investors purchase property, they file a tax return showing the sale price amount and pay a transfer tax.  The IRS can investigate where those cash funds came from and whether that money was already taxed.

Confused's picture

Agreed. I just know from my own personal experience, I have had trouble from banks regarding transfers for very little money as to the origin, and its purpose. Tax, well, thats an entirely different level of trouble that I'm sure these people are side stepping. 

migra's picture

Mortgages are not at all hard to come buy if you have good credit and income. The grossly overpriced housing market is the problem. I could buy today in San Diego but I refuse to get locked in a 30 year note in a overpriced rigged market. Instead I'll stay in my grossly overpriced apartment that I can walk away from with a 30 day notice.

Offthebeach's picture

The Realtor/Money Churn Support Local Valuations And Tax Industry is pushing for new new NEW NEW , Super New Not Like Last New,....programs/scam/rackets/schemes. Just a couple of example. Federal Expanded Section-8, Section-9,10 and 11.
Then there are Pre Veterans Housing programs for middle school serf boys schedualed to fight in ....2023-Defense Of Saudia Arabia Campaign And Domestic Stimulas Action, in 2037 The Manchuria-Fukashima Nuclear Highspeed Railroad Defense of High Yeild Bonds War, and The Baltic Trans BMW-Soviet Liberation From Rapacious Moscow High Frequency Trading Default Black Swan Event War.

Raymond K Hessel's picture

This is some kind of spam bot.  They are using Wordle on this site's comment pages to develop a post that would fit.  Actually, this is what many of your posts read like to me.

Blano's picture

Actually it kind of sounds like tony wilson.

Offthebeach's picture

Since the crony capitalist socialist are and will be controling , mostly, the future, one method of prediction is, somewhat, word spambot (ish). Just release yorself from reason, be extreme. You'll have trouble keeping up with the flood and speed of state idiocy.

LawsofPhysics's picture

Even better, no banks to bailout right MDB?  Good call MDB!

NoDebt's picture

Individual cash buyers.... who just got that cash by clearing out their 401k

LawsofPhysics's picture

more likely they are some of the fortunate few closer to that zero interest rate money spigot.  Fuck em.

NoDebt's picture

On the high end, absolutely agree.  But there are now TWO housing markets (just as we are rapidly transforming into a two-class society).  My own simple observations say this is true almost regardless of geography.  In other words, it's NOT just "location, location, location" as the only driver any more.  

Even beach property near O.C. Maryland I see it.  High end homes are FLYING.  Regular guy homes go begging and sell well below ask.

There are a lot of foreclosures going on down there, too.  You'll never see a sign on the yard, but I know a guy who does rehab work for the banks on those properties.  He showed me a house that just went through foreclosure less than 100 yards down the street from my Father's house... and neither my Dad or me ever knew.  Those foreclosures weigh primarily on the price point of "regular guy" houses.

 

fonzannoon's picture

Sane thing by me. There are literally 2 markets. The 500k and up market, which has unbelievable demand, and the under 500k, which is just overloaded with inventory and the owners can't get out of them.

Raymond K Hessel's picture

If anyone wants to buy a foreclosure and needs to develop a price the bank will accept, irrespective of anything else, here's how you do it.

 

You find out how much was owed on the property, Let's say $100.  

Research to find out what the loan is being held at.  You will need a Bloomberg machine or you will have to scour MERS and MBS websites.  Let's say 63 cents to the dollar.  The $100 loan is valued at $63.

Add 10% to cover mgmt fees, so $6.30, let's just round up, $7. 

$63 + $7 = $70 is your offer price.  They will jumps on it like a giraffe petting Ruskie oligarch.

hidingfromhelis's picture

No.  If a bank is trying to sell a property, they are trying to get the maximum price in a reasonable amount of time on the market.

Regardless of what the loan was before foreclosure, the bank is going to try to get market value.  In the (very) few cases where the loan balance was lower, why would they sell it for less?  Since most loan balances on foreclosed properties exceed the market value, one would pay more for properties using your formula in most cases.

Bloomberg Machine, MERS, and MBS sites for current info?  Are you serious?  Half the time, MERS doesn't even know who holds the note at any give time.  Besides, if you can get far enough into MERS and MBS sites to get actual information, then you're likely a TBTF already and don't need to bother with this stuff.

How much do the "Flipping Houses Using None of Your Own Money" courses cost at the local Holiday Inn these days?

LawsofPhysics's picture

Please, those close to the "free money" spigot are also buying rentals at every level of the spectrum.  I can see it everywhere.  those with a real job in the under 500K market are fucked  for numerous reasons, mostly the result of all that "low inflation".

plane jain's picture

Regular guy houses seem to be flying along pretty well here...SE Michigan.  Rents are high and availability of rentals is tight.  IMO it is pushing people into buying if they can.  Houses between 1200 - 1800 sq. ft., 30 to 60 years old are going for $200K - $250K.  Looks like banks are even starting to put foreclosures on the market.  One I checked out this week the neighbors said it had been sitting empty for 3 years.

I think we may have missed the best balance of prices/interest rates here.  My husband thinks prices will fall, but if interest rates climb we might be better jumping now.  Plan to stick around the area 10 years, just looking for a place to live, not an "investment".

LawsofPhysics's picture

You are going to pay "rent" either way, but when it comes to any "asset", remember, when fraud is the status quo, possession is the law.

So, if the numbers are right, ask yourself, "do I consider my place of residence, my home, an asset?"

That is all.  In my humble opinon, the fewer middlemen you have to deal with in life, the better. (fuck the landlord, be your own landlord).

MisterMousePotato's picture

Conventional wisdom is that one is better served by buying when interest rates are high (and, hence, prices are low), and then refinancing (or selling) when interest rates drop. So, no, fret not. Eventually, this will work to your advantage; it's just that no one can tell you how long you'll have to wait.

daveO's picture

A realtor used that 'rates are going up!' line on a relative last year, just when sales were turning down again. If rates ever normalize(10-yr at 4-5%), houses will drop by about half. Higher priced houses will probably lose 3/4th's. Of course, that'll take a foreign shock. There's no way the FED will 'unrig' rates on it's own.

MachoMan's picture

My husband thinks prices will fall, but if interest rates climb we might be better jumping now.

If interest rates rise, home prices will fall...  whether you hit some magical point where the prices are decreasing more quickly than interest rates are increasing is simply a timing decision...  but, I don't think you and your husband see the matter differently. 

Spastica Rex's picture

Add this to Charles Hugh Smith's definition of "Middle Class:"

Ability to buy second or third home with cash.

thamnosma's picture

You are such a troll.  No problem at all, everyone is doing so well they are flush with dollars to purchase homes.   What a joke.

pelican's picture

The problem?  Well, for one the people who protect and develop your society lose motivation.  Police, Spies, Doctors, Professors, Engineers and Teachers then cannot afford one. 

 

See how well that works out when you have removed them from the ownership club. 

MachoMan's picture

They already like taking orders and primarily work for the state...  not sure what magical upheaval you're dreaming of...

GVB's picture

Yes, agreed completely. But it does tell us something, right?

Harbanger's picture

As far as I know, property taxes are tax deductable.  So is mortgage interest.

cornedmutton's picture

I believe only on your first home and you must be living in it. Although I really wouldn't know as I've been a renter all me life....

Harbanger's picture

No.  It's deductable as a business expense along with interest paid, insurance and other costs.  You personal home gets you a 250k tax shelter for any gains you made in the sale.  The rest is taxed.

safe as milk's picture

"No.  It's deductable as a business expense along with interest paid, insurance and other costs."

that only works, if you rent the property out. otherwise, it's a passive loss which is a lot more complicated to use as a writeoff.

lo574's picture

Come on now.  Someone needs to buy those foreclosures and get 'em off the books to things "appear" alright.  *LOL*  Yes, definite sarcasm.  Drink the koolaid!

Never One Roach's picture

The biggest threat to seniors’ retirement might be the roof over their heads

 

More seniors today are carrying mortgage debt in retirement than ever before, rising from 22% to 30% from 2001-2011, according to a new report by the Consumer Financial Protection Bureau. Over the same period, the median mortgage balance for older Americans has nearly doubled from $43,400 to $79,000.

 

More seniors today are carrying mortgage debt in retirement than ever before, rising from 22% to 30% from 2001-2011, according to a new report by the Consumer Financial Protection Bureau. Over the same period, the median mortgage balance for older Americans has nearly doubled from $43,400 to $79,000.

imapopulistnow's picture

It is the hangover from the HELOC/MEW days.  Paying down thewse mortgages is part of the on going deleveraging process.