Are All-Cash Home Sales Good or Bad?
Posted by Doug Rice on Tue, Mar 23, 2010 @ 10:31 AM
Data released today by the National Association of Realtors on US home sales in February showed a decline of 0.6% and inventory surged by the most for the January-February period in 20 years.
But what may be more telling is that all-cash sales remain at a extraordinary percent of the total at 27%. Typically, all-cash sales fall around 10% of total sales.
What can we learn from this?
First, any data that hits a long term high or low water mark or is outside the ordinary deserves special note. To find a clue about the future, think about why this unusual event happened and what is likely to push it back toward the average.
Second and more specifically, housing prices are being supported by a tax credit that is about to expire and many of the buyers are speculators that are going to want to sell again in the future. So while those homes are off the books for now, they will come eventually.
The good news here is that the all-cash speculators can sit and wait without default. So there will be fewer bankruptcies going forward.
But the bad news is that there will be lower demand going forward and higher supply, so prices will naturally decline for some period of time.
Speculators paying all cash can wait for years for the market to rise. If you can't, prepare accordingly.