Cash Buyers Juicing US Property Market

Nearly one-third of homes sold in August in the U.S. were bought with cash and the closings are contributing to what may turn out to be a 5-year …

Nearly one-third of homes sold in August in the U.S. were bought with cash and the closings are contributing to what may turn out to be a 5-year high in property sales for 2012. Sales increased to a point that rivaled numbers not seen since 2010 when the government homebuyer tax credit expired and realtors are confident the year will turn out to be a record breaker. The news is tempered with the knowledge that there are still about 12 million borrowers who are underwater on their mortgages, and building permits and housing starts are not as indicative of a banner season as the sales data. For more on this continue reading the following article from TheStreet.

Sales of existing single family homes and condominiums beat expectations for August, rising to the highest level since May of 2010, when the government’s home buyer tax credit juiced sales temporarily. This time it could be argued that the government stimulus behind sales is record low mortgage rates, but that may not be all of it.

Close to one third of the homes that sold in August went to buyers using all cash, despite average rates on the 30-year fixed sitting around 3.6%. Rates appear to have less of an impact than hoped. Witness mortgage applications to purchase a home fell 4% last week, even as rates fell to record lows on the Mortgage Bankers Association’s weekly survey.

"The strengthening housing market is occurring even with difficult mortgage qualifying conditions, which is testament to the sizable stored-up housing demand that accumulated in the past five years," said the National Association of Realtors’ chief economist Lawrence Yun.

With the August jump of 7.8% from July, Realtors now say they are confident that home sales for all of 2012 will hit their highest level in five years. They do warn that there are still "frictions" in the market, not the least of which are about 12 million borrowers who owe more on their mortgages than their homes are worth. These so-called "underwater" borrowers are largely stuck in place, unable to cover their debt and unable to move up. (Read More: Cities With the Most Affordable Homes)

Claim up to $26,000 per W2 Employee

  • Billions of dollars in funding available
  • Funds are available to U.S. Businesses NOW
  • This is not a loan. These tax credits do not need to be repaid
The ERC Program is currently open, but has been amended in the past. We recommend you claim yours before anything changes.


"Bottom line, housing continues to recover, but the bounce still has to be put into the perspective of how much damage was done," notes Peter Boockvar at Miller Tabak. "Looking specifically at single family homes, at a sales level of 4.30mm, it’s back to where it was in 1998 and of course still well below the bubble high of 6.34mm in Sept ’05."

The jump in August home sales came on the heels of the government’s report on housing starts, which was positive but not as strong as some had predicted. Single family starts rose 5.5% month-to-month, but multifamily starts fell nearly as much. Building permits, considered a more reliable indicator of construction, were nearly flat (+0.2%) for single family, but hit the highest level since March of 2010. Multifamily permits fell 3%, but that was after an 11% jump in July. Multifamily construction continues to outpace the single family segment. (Read More: Home Builders Bullish for Fifth Straight Month)

"In a nutshell, this report re-enforces what the Fed and Ben Bernanke said last week–that the housing market is improving but depressed, and that housing remains the missing piston in the engine (Bernanke was referring to housing’s failure to reignite the economy,)" writes Patrick Newport of HIS Global Insight. "The recovery is proving to be a slow one."

As positive data begin to outnumber negative, analysts warn of a large pipeline of distressed properties that are still weighing down a potentially more robust recovery. Foreclosure activity increased in August, and states that had all but halted the process on thousands of properties, due to judicial challenges to paperwork, are now ramping up again. This will add lower-priced properties to an already low volume of homes for sale.

The question is, will that distress be absorbed quickly by investors and cease to have the negative impact on surrounding properties and consumer sentiment that foreclosures have had in years past? Investors, big and small, continue to move into this market, unafraid that rent prices will fall any time soon.

"The demand for rental housing is incredible," said former GE CEO and author Jack Welch on CNBC Wednesday. "The home rental idea is moving strongly." As for the latest news on housing starts? "We’re going nowhere in housing," Welch replied. (Read More: It’s ‘Frightening’ That Romney Is Not Leading Race: Welch)

Home sales usually get a slight boost in early fall before tapering off to the slowest season around the holidays. Regardless of seasonality, the numbers are improving, while the barriers to entry, like credit and negative equity, remain. The two will duke it out slowly in these next few months, until a stronger improvement in jobs and more certainty over regulatory changes in the mortgage market finally let the bulls run free.

This article was republished with permission from TheStreet.


Does Your Small Business Qualify?

Claim Up to $26K Per Employee

Don't Wait. Program Expires Soon.

Click Here

Share This:

In this article