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Almost 50% of the Homes in the U.S. Bought in Cash

Britney Scott / September 1, 2013

A lot of Americans are increasingly purchasing homes by making cash-down payments, as per recent surveys.  However, despite showing the spending power of the Americans, this trend might not fare well for the American housing market.  According to figures 40% of the residential property sales made in July this year were all-cash.  This makes it the highest rate since January 2011.

In fact, Goldman Sachs brought out another report in which it was estimated that the all-cash home purchases were around 57% which is a huge rise from 19% recorded in 2005 indicating an all-time high.  The current situation of the housing market could be its Achilles’ Heel  as the cities are the ones that are recording the largest number of all-cash purchases.  Although the ability to make all-cash purchases is the reason behind the surge in the sale of residential properties over the past  year. This has caused experts to warn that this trend should be treated with caution as it appears highly unsustainable.

Daren Blomquist, RealtyTrac vice president states:“The rise in cash sales is not a good long-term trend for the housing market.”  At present, the home market is being dominated by purchasers who are rich Americans, retirees and investors who are trying to purchase homes at cheap rates and put them up on rent.  All these three grounds together have led to the surge in the numbers of all-cash deals.  However, these three groups would not be able to sustain the housing market over the long run.

Investors constitute 35% of the all-cash purchases whereas retirees make up 12% of the all-cash buyers and the remaining constitute foreign buyers or those purchasing vacation homes- the rich.

The other problem that emerges from the current housing scenario is that it hints at the fact that it is increasingly tough to get housing loans, which is not a good thing.  The potential home buyers are now restricted to owing to the tight lending procedures and the increased home loan rates.  The bank’s strict controls have also caused a high percentile of people to decline their signed home loan contracts.

The Goldman report further states:”In our view, investor activity should slow down as house prices increase and rental yields compress, and banks should be more willing to extend mortgage credit as the housing market recovers and the regulatory landscape becomes less uncertain.”

The report also predicts that the housing situation should reach a realistic position by 2016 with an increase in the percentage of homes bought with mortgage.

 

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