By Mike Colpitts
Consumers who are cash rich figure they are cashing in for the future purchasing homes and other residential property in cash at the highest rate in decades, taking advantage of depressed real estate prices. All cash home sales account for 30% of purchase activity in September, up from 29% in August, according to the National Association of Realtors.
The spike in cash sales has been consistently high for more than a year dating back to September 2010. But the over-whelming majority of purchasers have actually lost money at least on paper on their real estate purchases since they bought property in the last year as home values decline.
The drop in home values is anticipated to sustain over at least the next 24 months as weak consumer confidence and high unemployment hamper the economy, and the housing market.
Investors hoping to cash in and make a profit make up the majority of purchases made in cash, buying 19% of all homes sold by real estate brokers in September, according to NAR figures. The rate, however, of investor purchases declined three percent since August, demonstrating real estate buyers are concerned about the direction of home prices slowing down on making decisions to buy property.
As mortgage qualifying becomes harder to obtain, loans for many consumers have become such an obstacle that they decide to pay for property in cash instead if they are fortunate enough to have enough greenbacks. Some investors are pulling cash out of the stock market and other financial investments.
“We need to remove the roadblocks to a housing recovery, not place more obstacles in the way of financially qualified buyers,” said NAR president Ron Phipps. “All year we’ve been discussing the fact that many creditworthy home buyers are being denied mortgages.”
The national median existing home price for all housing types was $165,400 in September, down 3.5% from a year ago, NAR said. Distressed homes, which include foreclosures and short sales sell at deep discounts, usually in the neighborhood of 30%, which is just how investors may cash in on a profit in future years.