Home Owners Doing Record Number of Cash Deals

A record number of home owners are using the increased equity in their current homes to buy their next homes in cash and avoid the mortgage process altogether. About 29 percent of non-investment buyers used cash to fund their housing transactions in the first quarter of this year — the highest level on record, according to a new Bloomberg report.

Baby boomers make up a large bulk of these all-cash deals, says Lawrence Yun, chief economist for the National Association of REALTORS®.

“Cash purchases are on the rise because older home owners who have decades of home-equity accumulation don’t want the hassle of a mortgage,” Yun says. “With the economy improving and the stock market at record highs, boomers are the ones who are driving the market.”

“The whole investor class, the ones doing most of the cash purchasing until now, is stepping back,” Yun says. “Baby boomers are taking their place.”

Baby boomers have more equity than previous generations because they may have owned a home during a 30-year “housing bull market.” In April, the median price of an existing-home was $201,700 compared to $67,800 in 1982, when many boomers had purchased their first properties, Bloomberg reports.

Baby boomers are expected to remain a strong presence in the housing market much longer than previous generations, too.

Source: “Cash Property Deals Reach Record with U.S. Boomers Retiring,” Bloomberg Businessweek (June 2, 2014)

Lenders Are Making More Loans

While the growth has been modest, banks are starting to make more loans again, The New York Times reports. Yet, the lending does tend to favor the strongest corporate and consumer borrowers, the article notes. 

With more stringent underwriting criteria the last few years, many borrowers have expressed concern over the increasing trouble in qualifying for a loan today. 

But “the narrative that banks aren’t lending is incorrect,” Timothy J. Sloan, Wells Fargo’s chief financial officer, told The New York Times. “Lending is strong, and based on what we’re seeing,” it will “continue to grow.”

Citigroup, for example, recently announced loan growth in the third quarter compared to a year ago in nearly all of its businesses.

The growth in loans is likely due to record-low interest rates, experts say. This seems to be true for the Placerville, El Dorado County, California regional market.

However, home lending still remains down. Mortgage and home equity loans have dropped more than 6.2 percent since peaking in late 2007 and early 2008, according to Federal Reserve data. 

“I don’t think the lending window is open near enough to what you need to see to get the economy growing, businesses expanding, and to bring the unemployment rate down,” Bernard Baumohl, the chief global economist at the Economic Outlook Group, told The New York Times.

Source: “Banks Start to Make More Loans,” The New York Times (Oct. 17, 2011)