Back in August of last year, we first reported data that not even believed at first, but has since been proven correct using existing home sales data, namely that a whopping 60% of all home purchases are "cash only." Furthermore, in the eight months since that post, our conclusion has also borne out as absolutely correct:
... 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.
The subsequent tumble in the housing market - both new and existing - confirmed that ther was no "housing recovery" and it was, as we had claimed all along, merely institutional investors bidding up real estate to convert it to rental, and foreign buyers parking illegally obtained cash in US real estate.
However, not even that data could prepare us for what we learned today courtesy of CoreLogic, which narrowed down the range from the broader "housing" segment just to the most appetizing (especially for investors and flippers) condo market. What it found was stunning: not less than 80% of all condos in key markets such as Florida, Nevada And New York are all cash.
Below is CoreLogic's take:
As of January 2014, Florida and Nevada have the highest cash share for condos across the country with shares of 81.2 percent and 80.5 percent respectively. These high rates could be because of several factors including investors buying up properties and the overall shrinking of the mortgage market. Following the leaders are New York (79.5 percent), Alabama (75.7 percent) and Arizona (65.7 percent). These five state account for just over half of all condo cash transactions across the country, with Florida representing 36.7 percent of the total alone. This is more than three times California, which accounts for 10.3 percent of the total condo cash transactions across the U.S.
On the low end, of the largest 25 states by total sales transactions Virginia had the lowest cash share of condos at 32.4 percent followed by Massachusetts (36.7 percent), Minnesota (38.2 percent), Wisconsin (38.7 percent) and Maryland (38.9 percent). These five states only account for 4.8 percent of all condo cash transactions across the country.
The trend for the two highest share states of Nevada and Florida can be broken into three distinct categories over time from January 2000 to January 2014. The pre-recession period-when credit was readily available to purchase condos, the recession-when credit standards tightened and the market contracted making it more difficult to finance a condo and post-recession-where investors play an increasing role in propping up the shares, while the mortgage market continues to shrink.
From 2000 through 2007, Nevada and Florida had an average condo cash share of 22.9 percent and 35.4 percent respectively. During the recession, shares spiked and Nevada, post-recession, has since averaged 85 percent while Florida is averaging 81 percent. The effect of the recession has pushed condo cash shares much higher than pre-recession levels over the past five years and it doesn’t look like that is changing in the short term.
Or, making a rough estimate, "all cash" purchases in the hottest condo markets have soared roughly three-fold in the key investor markets since the last housing bubble!
Without repeating our conclusion from nearly a year ago, what this simply means is that there is absolutely nothing remotely resembling a housing recovery, and certainly not one where the end buyer has to use the house itself as loan collateral, which would be the vast majority of the population, but instead more than three-quarters of all condo purchases are purely by investors who have already piled up cash using other forms of collateral (and thus aren't traditional home purchasers but merely flipping-focused investors), and who will flee from this market the second the Fed starts tightening monetary conditions, which in turns will make the next housing crash far worse even than the 2008 housing and credit bubble collapse.