Behind The Sound Bite: Cash Buyers
When Eric Belsky discussed the real estate market in Leominster recently (see page 22 for the story), he did not have particularly cheerful news. The managing director of Harvard University’s Joint Center on Housing Studies said the market is sluggish and the outlook is muddy. He rattled off a dozen or so statistics including this one: 29 percent of home purchases are made by cash buyers. In this week’s Behind the Sound Bite, we checked his math. And it turns out he’s right, which is not a good sign for the market.
What are cash buyers?
Cash buyers pay the full cost of a real estate transaction at closing without borrowing money.
What are the numbers?
According to the National Association of Realtors, cash buyers made up 29 percent of the market at the end of 2010. In March, the most recent month of reporting data from the NAR, cash buyers made up 35 percent of the market. That’s up from cash buyers making up only 15 percent of the market in October 2008.
What causes a spike in cash buyers?
Cash transactions are a lagging indicator, said Jed Smith, managing director of quantitative research for the NAR. When the market is inundated with foreclosures, it attracts investors, who are more likely to pay with cash than homeowners. A second culprit could be access to credit. When would-be homeowners, particularly on the high end of the market, can’t get access to credit, then they pay cash for the homes.
What does it all mean?
Generally speaking, a high number of cash transactions is not a good sign for the market, Smith said. Once foreclosures come down and lending standards are loosened somewhat, the percentage of cash transactions will likely level off as well, Smith predicts.
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