Example of a dysfunctional US economy: A record 43% of all US residential property sales in the Q1/2013 were all-cash

[HomeGuy]

The cash buyers today mean that all is not well in the housing
market,” said Clifford Rossi, finance professor at the University
of Maryland’s Robert H. Smith School of Business.

“First-time home buyers should make up 40 percent and we’re not
seeing it because of mortgage rules.”

No - you're not seeing it because the US no longer has a middle class.

The first-time home buyer is living in your basement. And until the bum
moves out and gets a job and STARTS A FAMILY / HOUSEHOLD, he'll never be
a home buyer.

----------------------------------

"All Is Not Well In The Housing Market" As All Cash Buyers Double
In Past Year, Hit Record High

05/08/2014

Confirming and continuing a trend we first described a year ago,
overnight RealtyTrac reported, as part of its Q1 institutional investor
and cash sales report, that the percentage of all-cash buyers has soared
in the past year with "42.7% of all U.S. residential property sales in
the first quarter were all-cash purchases, up from 37.8% in the previous
quarter and up from 19.1% in the first quarter of 2013 to the highest
level since RealtyTrac began tracking all-cash purchases in the first
quarter of 2011."

Loading Image...

Curiously this is happening as institutional investors, think
Blackstone, are slowly exiting the market: "Institutional investors —
entities that have purchased at least 10 properties in a calendar year —
accounted for 5.6 percent of all U.S. residential sales in the first
quarter, down from 6.8 percent in the fourth quarter of 2013 and down
from 7.0 percent in the first quarter of 2013 to the lowest level since
the first quarter of 2012."

============
“Strict lending standards combined with low inventory continue to give
the advantage to investors and other cash buyers in this housing
market,” said Daren Blomquist, vice president at RealtyTrac. “The good
news is that as institutional investors pull back their purchasing in
many markets across the country, there is still strong demand from other
cash buyers — including individual investors, second-home buyers and
even owner-occupant buyers — to fill the vacuum of demand left by
institutional investors.

“While the institutional investor purchase share declined in the first
quarter in 18 of the top 20 markets for institutional investor share a
year ago, home prices continued to appreciate in most of those markets,
albeit at a slower pace in many cases,” Blomquist continued. “There are
a couple notable exceptions that could be cause for concern:
Jacksonville, Fla., where the institutional investor share of purchases
was down to 13.5 percent in the first quarter compared to 18 percent a
year ago and where median home prices decreased 1 percent from a year
ago in March after 15 consecutive months of annual increases; and
Greensboro, N.C., where the institutional investor of purchases was down
to 6.4 percent in the first quarter compared to 10 percent a year ago
and where median home prices decreased 8 percent from a year ago in
March following 14 of 16 months were median home prices increased
annually.”
=============

Or, in other words, the smart money is fading the market as the last
flippers scramble to pick up the pieces. And while one can debate the
mix composition and what it means for future trends, one thing is clear.
Via Bloomberg:

=============
The cash buyers today mean that all is not well in the housing market,”
said Clifford Rossi, finance professor at the University of Maryland’s
Robert H. Smith School of Business. “First-time home buyers should make
up 40 percent and we’re not seeing it because of mortgage rules.”
=============

Actually we're not seeing it because US consumers are unable to chase
home prices into the stratosphere and instead have opted to rent, as all
the recent data has confirmed, and as even Jeffrey Gundlach confirmed
recently with his bearish call on housing.

However, while the market reserved for the US middle class is
floundering, one segment is still vibrant - that segment which allowed
foreigners to launder their money with US real estate.

=============
"In Manhattan, you have foreign buyers coming in and using properties as
a second, third, fourth or fifth home and hedging risks in their home
countries,” said Chris Mayer, a real estate professor at Columbia
University Business School in New York.
=============

And as long as the NAR continues to be exempt from anti-money laundering
requirements, as Zero Hedge also described well over a year ago, this
explicit money laundering will continue unabated. Them, and hedge fund
managers still riding on the wave of Fed generosity of course:

=============
In Manhattan, buyers are using cash for trophy apartments and to gain an
advantage over borrowers who must depend on loans to finance a purchase.
Pej Barlavi, owner of brokerage Barlavi Realty LLC in Manhattan, said
three of his five current clients buying homes prevailed with all-cash
offers.

Barlavi said two of them are hedge fund managers who used year-end
bonuses to buy the properties: a $2.2 million two-bedroom apartment in
Midtown, selling for $150,000 above the asking price; and $1.5 million
for a one-bedroom in Tribeca. His client in the second transaction was
“nudged higher by a foreign buyer” before being chosen by the seller,
Barlavi said.
=============

Bottom line: in the Miami area, 67.1 percent of sales were cash deals;
New York posted 57 percent; Detroit recorded 53.5 percent; Atlanta had
53.2 percent, and Las Vegas posted 52.2 percent.

Needless to add, with risk momentum still up as the global central banks
continue to pump liquidity into the system at an unprecedented pace, the
trajectory of all cash transactions will keep rising until inevitably it
approaches 100%, if not for the entire country, then certainly for the
abovementioned key markets. At that point, US housing will be nothing
but a flippers game as the ultra-rich merely flip properties from and to
each other at an ever faster pace.

Just like stocks.


http://www.zerohedge.com/news/2014-05-08/all-not-well-housing-market-all-cash-buyers-double-past-year-hit-record-high

[HomeGuy]

That should have read Q1 / 2014, not 2013.

[sms]

Post by HomeGuy
Bottom line: in the Miami area, 67.1 percent of sales were cash deals;
New York posted 57 percent; Detroit recorded 53.5 percent; Atlanta had
53.2 percent, and Las Vegas posted 52.2 percent.

In areas with a huge surplus of properties and a lot of foreclosures the
banks are not all that willing to make loans. I recall a real estate
agent telling us when we were selling my late mother's house that since
values were falling about 2% per month that it was hard to find a bank
that would lend money unless the buyer had a huge down payment. He said,
"Want a condo on the beach? $20K cash. No bank will lend you money
because there are so many abandoned units that the HOAs can't function
with so few people paying dues.

In my area, you have lot of buyers from Asia coming in and they think
that the prices are cheap. You'd be amazed at what a 50 year old, 1500
square foot, fixer-upper, goes for if it's in the right neighborhood.

This is not really due to any dysfunction, it's the housing market
coming back down to earth.

If you're a seller, all you care about is getting top-dollar. If someone
qualifies for a loan and offers you more money than a cash buyer you
take the larger amount of money. The cash buyers must be making higher
offers than those getting a mortgage.

[HomeGuy]

Post by HomeGuy
The cash buyers today mean that all is not well in the housing
market,

Sounds more like buyers get more reaponsible.

people like home guy can always *spin* a positive into a negative,
it's what they do.

Your real estate market in the US has become dysfunctional because of
the destruction of the middle class and the lack of your kids forming
family units because they blew your retirement on college tuition and
now they've come back to live in your basement (or maybe they've never
left) and you've had to forestall your own retirement to make ends meet.

paying cash shows exactly what you said " a positive", nobody
can lose but the buyer(THE RESPONSIBLE PARTY)

Who do you think the buyers are?

Who do you think is paying cash for forclosed and abandoned homes?

Who's money do you think they're using?

When more than 40% of residential property purchases are being made with
cash, in an economy that has never really recovered from a recession 5+
years ago, when your middle-class incomes and net-worth have declined to
levels last seen in the 1970's, do you really think that these cash
purchases are being made by your every-day 30-ish or 40-ish family
buying their first home or moving up into their second home?

These cash-homes are being bought by institutions and turned into rental
properties as the destruction of your middle class continues. Home
ownership (a home owned by the people living in it) is in decline in
your once-great but now a joke of a country. Get over it.

[HomeGuy]

The price of houses will then drop to what people CAN afford.

No.

House prices will drop to what hedge funds can afford.

Wall Street is the new american landlord. Or didn't you know that?

Houses, in that respect are no different than any other
commodity.

Exactly.

Just ask any high-frequency trader.

Or Warren Buffet.

[HomeGuy]

Post by HomeGuy
Wall Street is the new american landlord. Or didn't you know that?

No, there are mortgage funds that you can buy into, but the
majority of real estate on the stock market is in the form of
Real Estate Investment Trusts and Real Estate Mutual Funds.

We're not talking about how the Canadian real estate market is
structured.

Big companies such as Blackstone are a new force in the
single-family home market, offering more ready cash than
ordinary buyers and helping push up prices.

Of course Chairlady was a fool to suggest that wall street investors are
any more sane than they were back in 2007 and that the fact that they
are buying thousands of single-family homes for cash means they making
wise financial decisions.

They think they have you (the american serf) held hostage because it's
either you pay them their exorbitant rent, or go live back with your
parents, your car, or under a freeway overpass.

Maybe they can - for now.

---------------
http://thinkprogress.org/economy/2014/01/24/3203471/wall-street-landlord/

Wall Street’s Frightening New Plan To Become America’s Landlord
January 24, 2014

Anyone who has ever struggled to get her landlord to fix a broken
appliance can imagine how much worse it could have been if she were
paying rent to a faceless hedge fund based thousands of miles away. That
tenant’s nightmare may be on its way to reality for hundreds of
thousands of Americans, as Wall Street firms have snapped up 200,000
family houses with the intention of renting them out.

Banks, hedge funds, and private equity firms have been amassing those
real estate holdings for a few years now, but their plan for wringing
profit out of the rental market is just starting to draw real scrutiny.
The New York-based hedge fund Blackstone Group is now the nation’s
largest landlord after purchasing over 40,000 foreclosed family homes
for the purpose of renting them out.

The rising influence of financial titans turned local landlords could
threaten all sorts of public services. In the case of Huber Heights, OH,
the hedge fund Magnetar Capital has become the largest landlord in the
whole town and is using that influence to try to extract lower property
tax charges from the town — a change that would undermine funding for
schools and other public services for locals, but boost the bottom line
of the Illinois-based financial giant. (Magnetar’s dodgy past dealings
from the subprime era also underscore an unsettling dynamic to Wall
Street’s entry into the rental market: the same companies that helped
turn homeowners into renters through mass foreclosures are now preparing
to make even more money off of the same rental demand they helped
create.)

But firms like Blackstone aren’t just renting the homes, of course. The
real money for the firm is in turning the rent payments it will receive
from those 40,000 units into financial products called securities that
it can sell to other investors. The practice could prove to be a broadly
beneficial way to allocate scarce housing resources — or it could mirror
the casino culture that turned the subprime bubble into an
economy-wrecking conflagration.

And problems in the rental housing market may be inevitable given that
rents are rising far faster than family incomes. Nationwide, the number
of people who face unaffordable rent prices is at an all-time high. A
report put together by Takano’s staff demonstrates the shift from
homeownership to renting amid rising rental costs within his Riverside
County district. One third of all renters in Takano’s district spend
more than half of their income on rent, a far higher rate than what
financial professionals say is sustainable. The national rate is
similar, the report says, with about 12 million of the nearly 41 million
renter households nationwide paying more than half their income in rent.
The median annual rent for Takano’s constituents is up $756 since 2007,
but their median income remains about $5,500 below what it was prior to
the crisis — another phenomenon that is common to the country as a
whole.

Rents are rising in part because the years-long foreclosure crisis has
meant that there are far more people in need of rental housing after
having lost their homes. Thanks to that same foreclosure wave, hedge
funds and private equity firms have been able to buy up 200,000 family
homes at fire-sale prices, many of them in the Inland Empire zone of
central California where Takano’s district lies. Citing these and other
facts, Takano’s letter calls for a HFSC hearing to review developments
in the rental housing market.

On top of the broader market factors driving rents up and keeping
incomes from recovering, the supply of affordable housing is getting
literally torn down as the housing industry focuses on building
properties meant for middle- and high-income occupants. Given the
building crisis in affordable housing and the impending threat of
neglect from America’s new, inexperienced landlords, Takano’s call for
oversight should be harder to ignore than the typical call to police
Wall Street.
----------------

See also:

Meet Wall Street: Your New Landlord
http://www.zerohedge.com/news/2013-12-20/meet-wall-street-your-new-landlord

When Wall Street becomes a landlord
http://money.cnn.com/2014/04/01/real_estate/real-estate-investing.moneymag/

Wall Street's Hot New Financial Product: Your Rent Check
http://www.motherjones.com/politics/2014/01/blackstone-rental-homes-bundled-derivatives

Wall Street becoming America's biggest landlord: buying up properties
for cash and then renting them out.
http://www.blacklistednews.com/Wall_Street_becoming_America's_biggest_landlord%3A_buying_up_
properties_for_cash_and_then_renting_them_out./33561/0/38/38/Y/M.html