Cash Purchases Since 2012

A new report released on August 14, 2013 by Goldman Sachs’ Hui Shan, Marty Young and Charlie Himmelberg, over 50% of all home purchases since 2012 have been all cash purchases.  This is dangerous, because the majority of buyers are either looking for the “flip sale” or turning these properties into rentals.  As a result, when the market starts to turn, the investors start running out of money, rental rates decline, mortgage interest rates rise, more bank real estate  inventory is released, foreclosures tick up (up 2% in July), or sentiment turns, these investors will start dumping their investment, stop making additional investments, and the bubble will pop.  When these prices start falling, we might be in a similar value downturn (though not so severe) as 2008.