Here are two data points on how the housing market is doing: We’ve got low interest rates. And it can be hard to get a mortgage.
Okay, here’s data point number three. It turns out that for half of the homes bought last year, financing didn’t matter. Because the buyers paid cash. A report from Goldman Sachs says that all-cash sales have more than doubled since housing prices started to collapse seven years ago.
Several factors led to the rise in the cash for homes business. One is the glut of cheap housing following the foreclosure crisis. Another is the tightening of lending guidelines. “This market by nature is much more attractive, conducive, to cash buyers,” says Daren Blomquist from RealtyTrac.
Cash buyers can be hedge funds, retirees or foreign buyers. RealtyTrac recently put out a report that said more than 50 percent of June home sales in Nevada, Florida and New York were all cash. In Vermont, it was 80 percent.
So what does this mean for the recovery in these places? Blomquist says it could make those markets more stable. “There’s not the risk down the road for foreclosure, because they are purchasing with cash and not financing those purchases.”
This trend has also led to the rise of the single-family house rental. Steve Cook with Real Estate Economy Watch says many of these houses are being occupied by families who were foreclosed on, or who see their rental as a stepping stone to owning. “And it’s just like living in a nice house in a nice neighborhood with schools and whatever amenities that a young family might need, but instead of paying a mortgage you are paying a rental,” says Cook.
Christopher Mayer with the National Bureau of Economic Research says cash buyers have had an effect on the housing market. “The cash buyers definitely helped put a floor on the housing market and start picking up prices.”
But Mayer says it’s unclear whatthe long-term impact will be in neighborhoods where the balance has shifted from owner-occupied to rentals.