RealtyTrac the database for all things real estate in the U.S. came out with it’s August report showing a new problem: 45% of people buying houses today are doing it wheelbarrows full of cash – in other words, pure cash transactions.
So who are these people? Considering that the median house price is hovering around $200,000, they are basically people who have at least $200,000 in cash sitting around. In other words, these people are at least the top 15th percentile in income distribution. As for lower 85%? Therein lies the 2 main problems (I’m sure there’s more if I really think about it):
1) Supply and Demand: There is still an overstock of housing. Can dump trucks full of cash really buy at least 50% of the overstock, and/or will it send prices in some wild direction? Here’s how NEW home sales (excluding existing homes) versus building looks now and historically:
2) The greater social problem of people needing mortgages to outbid the wheelbarrow full of cash. When paying cash for a house, there’s no appraisal, no pre-inspection, no nothing – just back the truck full of cash up, and open up the gates. Much easier than getting a mortgage these days.
Unless banks start opening up mortgage credit to average folks again, housing doesn’t stand a chance. But who is going to give a mortgage to the guy making $8 at 20 hours a week?
The whole point of the FHA 20 year mortgage was so average people could mortgage homes with their good paying jobs, and have something to own (and pass along to their heirs) in 20 or 30 years. Those days are gone, and we’re back to needing a wheelbarrow full of cash to buy a house. R.I.P. FHA.