why "cash buyers" in housing

Discussion in 'Economics' started by billyjoerob, Apr 2, 2013.

  1. Housing is booming, or so I'm told. The conspiracy theory I've read is that the big banks are keeping foreclosure inventory off the market, driving down inventory, driving up prices. I guess the idea is that in a few years (or few months) they will start to dribble the shadow inventory on to the market. They can't sell it right now, because they'd have to take losses to loan value, which they refuse to do. And there is just a foreclosure backlog, due to the paperwork. Plus the FHA is supporting the lower end of the market with low down mortgages, though that is coming to an end.

    Here's what I don't understand. There is apparently a large number of "cash buyers," both individuals and big funds, in the market. Normally "cash buyer" is a good sign. But why, with rates this low, would anyone pay cash? I realize the big funds don't need mortgage approval, but if you're a small time landlord in NV or LA, why cash and not mortgage?
  2. By the way, if we apply a little technical analysis to housing, this looks like a dead cat bounce. We might bounce up a few more percent, but "cash buyers" are not going to be irrational like ALT-A buyers could. So we could go sideways (or worse) for years after this little mini-boomlet. And that doesn't include all the overhead supply of sellers who want to get out at breakeven.
  3. because with cash you can close the same day vs waiting for financing, ask your local realtor how they feel about short sales.
  4. This may not completely apply to what you are asking, but a lot of times house flippers buy all cash. Transactions are faster, there is no primary residence requirement, and they can purchase physically distressed properties that might not get loan approval. Also, if they have the cash they don't waste money on a loan.