Cash Buyers Lift Housing…or Not

In a Wall Street Journal article titled “Cash Buyers Lift Housing,” the WSJ suggests that an influx of homebuyers paying cash for their real estate transactions may be responsible in part for “lifting” the housing market after many months of struggling.

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Source: WSJ.com

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The article cites research from real-estate hub Zillow.com showing the increase in cash purchases in the Miami-Ft. Lauderdale area from a mere 13 percent in the fourth quarter of 2006 to more than half in 2010. Additional research from the National Association of Realtors shows cash transactions nationally represented 28 percent of purchases last year, up from just 14 percent in 2008.

The article highlights other indicators in the economy such as gaining stock indexes and increased use of credit cards in 2010, seemingly aligning the cash buying with those indicators.

Radar Logic, which reports daily on home prices and produces a monthly RPX Monthly Housing Market Report, released a note warning readers of the article not to draw the wrong conclusions. While the WSJ article does mention a tight lending environment as one potential reason for the increase in cash purchases, Radar Logic reminds readers that the lending environment as well as low prices are strong reasons for the increase, and that while homebuyers may be paying in cash, prices are still falling and transactions are down.

Radar logic cited its November research showing that the RPX home prices for Miami fell 9.3 percent from November 2009 and the transactions total declined 8.9 percent year over year.

Written by Elizabeth Ecker

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  • Any positive articles on real estate right now must be viewed with strong skepticism. Sharp increases in cash deals remind one of the days of the vulture and bottom feeder markets; that says we are not yet into a general consumer buying market. Once again this seems to point to reaching the bottom of the extreme drops in home values. We have seen such signs before without reaching a national bottom.

    In LA, about 8 months ago, we began to see spotty, competitive cash bidding on properties on lower end homes. Home values in those areas seemed to jell and have started rising. It “seems” LA has risen from the worst of its problems but is far from being out of trouble.

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