Cash Home Purchases & Low Demand for Mortgages the New Normal

It’s not new news that a major chunk of home purchases are being made with cash. For several years now, there’s been a steady 30%+ of cash home purchases fueled by investor demand. This is more true than we can prove with hard numbers, as many deals over the past few years were “off the books” in a way. Investors were buying before homes hit the MLS, buying directly from banks, and thousands of homes were purchased in bulk deals. Many of these are not in the data that reports that 30% number.
Lately there’s been a lot of news about investors pulling back somewhat, or that they’re not finding the bargains they want so they’re not buying, though they want to. This lessening of investor buying pressure would seem to be impacting that percentage of cash home purchases to the downside, but the number is holding and even increasing in some areas. If investors aren’t buying as many homes, why is this the case?
It’s really simple economics, and a really poor economy and job market. The vast majority of regular consumers who would buy a home right now simply cannot afford to do so. Even if they can, if they’re in a high-demand area, they’re getting into bid wars on a regular basis. The cash buyer percentage is holding because few who would need a mortgage are able to buy.
The vast majority of younger buyers who used to make up the “first-time home buyer” market are not only not buying, but many aren’t even able to rent. They’re living at home with their parents, trying to pay off student debt, and hoping at some point to be able to afford a down payment and a mortgage.
Current new mortgage applications are down to levels last seen back in 2000. The public is pretty much shut out of the market. There aren’t any more of those easy mortgages, though interest rates are still very low. The average consumer who doesn’t currently own a home but wants to is just watching the market. Higher down payment requirements are hampering some new mortgage demand, and there’s just a general poor mood about the economy and job prospects.
All considered, it’s still a great time to be a real estate investor, as rental demand is rising just about everywhere.