Professional Cash Buyers Are Buying - Are You?
June 2, 2009, Writen by: Chris Anderson, Ph.D
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As we continue our series of blog posts about the change in real estate markets, we will now show a little known “secret”. What the average Joe is doing, and what the professionals are doing, are 180 degrees apart. Again, we will use Tampa as our example but what we show is happening in many places across the USA.
So What Is Joe Doing?
Referring to the typical home buyer as the “average Joe”, let’s see what is happening. What everybody “knows” in the market is that times are tough and RETAIL prices are dropping. Referring to the figure below, we see that this is true in every submarket in Tampa.
Chart Shows 12 Months Of Data For Various Tampa Submarkets
NOTE: This is RETAIL pricing. Prices paid by investors is RISING.
So, with this happening, Joe still believes now is not a good time to buy. Let’s also look at the number of mortgages being written but let’s go all the way back to 2005 as we started coming off the boom in Tampa. Here is what those charts look like for conventional, FHA, and VA financing.
Clearly, Joe is still on the sidelines.
What Is Sue The Professional Doing?
As mentioned in a previous blog post, there is now BIDDING WARS between professionals when a house goes on the market priced right. Let’s see if we can really QUANTIFY that. One very good measure of professional activity is CASH purchases. Typically pro’s move in with very low (or zero) financing so if we look at the number of cash purchases, it give us some indication as to the direction of pro’s and knowledgeable individuals. We can also verify by being in the market that this is EXACTLY what is really happening.
Referring to the figure below, we see that Sue was not buying in 2005 when Joe was buying everything in sight. We also see that now Sue, the Cash Buyer, is now buying while Joe is bailing. The typical example of the pro’s doing EXACTLY OPPOSITE what most people do.
Just for comparison purposes, let’s now put conventional financing and cash on the same chart.
NOTICE THAT THERE IS NOW MORE CASH BUYS THAN FINANCED!!! If that does not tell you something interesting about the way the pro’s think vs Joe.
The Cash Buying Pro Is Now A Huge Percentage
A natural question to then ask is what percentage of sales is cash now, and in the past. This is shown in the chart below:
From this chart, we can see that cash buyers are now nearly 40% of the Tampa Bay market. If you ever wanted an inside look at what the “pros” are doing in a market, this shows you.
Predictions For The Future
While we don’t have a crystal ball either, let’s see what predictions that we might be able to draw from this information.
- Cash buyers & pro’s are buying everything in sight right now;
- Conventional buyers still see “gloom & doom”;
- Inventory will be absorbed by the professionals given rents versus prices;
- At some point (we predict 6-12 months), Joe will wake up and then realize they are about to miss a golden buying opportunity;
- Once a significant number of Joe’s start to “get it”, then prices begin to rise again as they scramble to buy homes before prices “rise too much”.
The joys of a real estate cycle……. it is just too predictable.
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Comments
2 Responses to “Professional Cash Buyers Are Buying - Are You?”
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Who Is "REALLY" Making $ In Today's Real Estate Market?
Our 29,689 Members Tend To Agree...
It's Usually Not The GURUs
Have you ever noticed that every "Guru" real estate pitch sounds the same........
They once were poor, but now are rich working only 5 hours per week, and you can be rich too if you just buy their "can't fail system".
Or have you noticed that every property promote has a can't miss proposition, if you just buy TONIGHT.
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bryan-
in general good projections, yet I have two contrarian concerns:
1) banks have been holding back inventory of foreclosures, thus artificially restricting the supply of homes
2) fallout and foreclosure is starting in commercial real estate which will have a long way to go.
what we may seeing right now is a dead cat bounce.
Of course I agree with all the statistics, (More cash buyers than loan buyers), but I have to be a bit contrarian and agree with Bryan. The foreclosure inventory is not going to continue to diminish; I believe it is going to sky-rocket again in the next 6 months, prices will drop again. I primarily speak about CA, where prices on foreclosures has been rising for the past 3 months.
I like the Dead Cat Bounce analogy, even though kinda gross.