Tuesday, February 8, 2011

Cash Buyers Lifting Housing Market

WSJ reports:
Buyers in markets around the U.S. are snapping up homes in all-cash deals, betting that prices are at or near bottom and breathing life into some of the nation's most battered housing markets.

Cash buyers represented more than half of all transactions in the Miami-Fort Lauderdale area last year, according to an analysis from real-estate portal Zillow.com. In the fourth quarter of 2006, they represented just 13% of deals. Meanwhile, downtown Miami prices rose 15% in 2010 from a year earlier, according to the Miami Downtown Development Authority.

The percentage of buyers in Phoenix paying cash hit 42% in 2010—more than triple the rate in 2008, according to Raymond James's equity research division.

Nationally, 28% of sales were all-cash transactions last year, according to the National Association of Realtors. The rate was 14% in October 2008, when the trade group began tracking the measure.
Curiously, the reporter for this story references a Keynesian term to explain the phenomena:
The jump in real-estate purchases made with cash is another sign of the revival of animal spirits in the U.S. economy.

It's not about "animal spirits" it's about the desire to reduce cash balances and the Fed printing money. The reporter actually touches base on this Austrian school view:
The Federal Reserve reported that Americans increased their use of credit cards in December for the first time since August 2008, showing that consumers are getting less skittish about opening their wallets.
Further, even those paying all cash may be doing so as a result of a climb in price of other assets that they are able to liquidate more easily and at a higher price:
Richard Stoker, a retired sales executive, recently plunked down cash for two condominiums in Miami Beach, and plans to close on one more in coming days. He loves the complex's ocean views, four swimming pools and activities such as yoga and Pilates.

But what also motivated the purchase, said the 73-year-old, was that "the prices were just irresistible. Florida's been hit pretty hard." To pay the $1.8 million, $1.2 million and $1 million prices on the condos, Mr. Stoker and his wife, Jane, cashed out of some financial investments and sold a Roy Lichtenstein painting and an Alexander Calder mobile.

Mr. Stoker could have taken out mortgages, but decided to pay cash. "It was a good time to lighten up in the art market and take on real estate at a favorable price," he said.
The market that was hit hardest during a downturn is often the last to recover, but it appears that those with gains in the stock market and other assets know that it is the savvy time to buy real estate. They are the cautious types liquidating other assets to make their purchases, but they know where the bargains are. Next come the high rollers who see the climbs in prices and borrow bank money to get in on the market. And given where I expect rates and real estate to go. It likely makes sense to borrow and lock in rates  right now. Rates are going in only one direction: up. And as long as the Fed is printing, so are other assets, including real estate.

1 comment:

  1. The all-cash buyers of real estate are lifetime losers. They are locking in the 87% loss of value in the dollar compared to gold over the past ten years: http://www.gracelandupdates.com/images/stories/JFM11/2011jan11gold1.png