Half of All Home Purchases Paid for with Cash

[Joshua Dorkin]

According to RealtyTrac, in some major markets, over 50% of purchases were made in cash. Here's a look at the details:

Report: Half of all home purchases paid for with cash

What does this mean for the overall health of the market?

Discuss . . .

[Michael Woodward]

I'm glad you brought that up @Joshua Dorkin . I've been wondering what the net effect is going to be from the recent spike of investors entering the market.

I dabbled in the stock market in the late 90's but couldn't get comfortable with the fact that I couldn't control my investments. I'm much more of a hands-on person and had a background in construction (from my teenage years) so real estate just "fit" for me. At that time the stock market was going crazy but the real estate trend (graph) was a nice smooth incline. After the dot.com crash in the early 2000's, people ("the herd") lost faith in the stock market and started looking for a place to put their money. It didn't take long for "smart-money" and people in general to realize that real estate was doing really well. We all know what happened next, the herd-shift turned into a full-on stampede. So much money poured into real estate that the crash/bubble was inevitable.

What I see happening now is similar to the post-dot.com and post-bubble activity. "Smart-money" has been looking for solid investments since the bubble burst. Some of it has gone back into stocks and some has gone back into real estate. The thing that's different from the post-dot.com era though is that, (thanks to the gurus) the word "foreclosure" is synonymous in many peoples minds with quick, easy money. So instead of looking elsewhere to put their money, people are circling back into the real estate carnage to buy up the cheap assets. Unfortunately, given the large number of new investors this appears to be another stampede. It's not as big as the last one but it's significant.

So the million $ question is...what's going to happen next month, next year, etc. My short answer is "I don't know".....but I see things out of balance with historic trends and that makes me nervous. I'm not aware of any time in history when 50% of all sales were from investors. Maybe it creates a floor in the market that helps boosts real estate values back to solid footing and we all live happily ever after.....or, if something triggers the herd to run for the exits......well, we know what that would look like.

I think that until the volatility subsides, we won't know exactly what the next year will look like. I'm moving forward enthusiastically.....but very cautiously.

That's my two cents......