Cash buyers make up almost a third of U.S. home purchases | Hacker News Reader

Cash buyers make up almost a third of U.S. home purchases

deseret.com

27 pointsCharlesW23 comments

Since this confused me: cash buyer in relation to housing is someone paying the full amount without using a mortgage. They are probably using checks or wire transfers instead of metal briefcases filled with $100 bills.

It’s a proxy for non wage earner real estate purchases. Either investments or buyers coming with all cash from equity of any sort (previous real estate holdings, securities, etc).

It’s important because it distorts local markets where wage earners who need a mortgage and are governed by a monthly payment are competing with these market participants.

Maybe. But some are homeowners who sold a property and use the proceeds to pay for another one, in which case there's not much change in net demand. This surely beats their taking out a low interest loan to speculate on an investment property.

> But some are homeowners who sold a property and use the proceeds to pay for another one, in which case there's not much change in net demand.

That's not a cash offer unless the property being purchased is far lower in purchase price than the profit off the sale of the first home (i.e. due to downsizing, or moving from a much higher to much lower cost area), in which case it is a different housing submarket, and there could be a net local demand increase.

If I understand correctly, what you're saying is that selling for $200k usually means you had $120k left on the mortgage, so you only get $80k and can't make a cash offer for a new $200k home.

> so you only get $80k and can't make a cash offer for a new $200k home.

Or if you are buying an $80k property with the proceeds, it is so different than the sold property - either much smaller or less desirable in some way - that you are buying in what is effectively a different market altogether.

Or the buyer is a long-time homeowner who has largely paid off the mortgage on their original residence, or at least paid it down such that inflation + payments has increased their home equity to near the purchase price of a new home.

This includes nearly all senior citizen purchases, but it's also a surprising number of 40/50-something wage earners who bought in HCOL areas around 2010, saw their $800K homes appreciate to about $2M, have paid the mortgage down to about $450K (or paid it off entirely, using stock price appreciation), and also have a couple million in appreciated stocks from saving abundantly during the 00s and 10s and enjoying the stock price appreciation.

That’s a possible explanation: people who hold title without encumbrance on their home are moving more often.

Another possible explanation is that there are more people/entities with large amounts of cash, or less people with enough income to buy a house, or both.

Or maybe all three.

Or, taking a securities backed line of credit against personal investments. Making the purchase promptly, then mortgaging afterwards

In Australia actual suitcases of cash are allowed and sometimes used for buying houses because Lawyers, Realtors, and Accountants have zero accountability to report anything suspicious to anyone.

"Anti Money Laundering" laws to stop that happening never managed to actually be passed into legislation in Australia [0] despite many "attempts" since 2006 (the politicians forming discussion groups of committees for re-reviewing the potential idea of AML every few years then seemingly deciding it's too scary to be labelled as the cohort who stopped the vast money laundering into property in Australia).

KYC only exists for banks here, and we are near the bottom of the barrel when it comes to money laundering compliance [1] (Australia is one of only 8% of countries assessed by the FATF’s 4th Mutual Evaluation process as being totally non-compliant)

A suitcase of cash buys a criminal the choicest realestate plus a chain of anonymous Australian shell companies controlled by Panamian or Cayman Islands companies.

The actual beneficial owner of the property can rarely be determined in these cases.

Or even worse, they leverage their crime proceeds and get fat bank loans. Our largest bank was in on it too, they've been caught so many times [1]

A new book [2] titled "The Lucky Laundry, How the Aussie Economy Got Hooked on the World’s Dirtiest Cash" was recently published about Australia's wilful ignorance in turning a blind eye to crime because of greed and rampant capital appreciation (many yearly house price rises are greater than the owner's annual gross salary/wage before tax)

[0] https://www.macrobusiness.com.au/2021/09/australian-property...

[1] https://michaelwest.com.au/do-not-stuff-up-this-institution-...

[2] https://michaelwest.com.au/lucky-laundry-review-aml-australi...

That's good, people should be able to do that. If people want to exchange cash for items of value there should be nothing stopping them. Police should just investigate crimes and stop laying totalitarian dragnets and checkpoints for everything people do that in some cases might also be done by a criminal.

The problem is barely anyone with any authority will ever want to investigate anything because they don't want to stop their own personal profits of sales commissions, legal/accounting fees, and the never-ending "equity mate" debt capital redraw from the magic pudding of upwardly inflating property valuations for 20+ years with hardly a pause.

It it open slather anything goes.

Meth money buys a lot of houses.

Global embezzlers flee their defrauded victims and find safe havens in Australia.

Lots of people clip the ticket and the govt makes more tax money, so why rock the boat and ask why a 22 year old has $2 million in cash?

Let me set you up with a few shell companies for blind asset holdings then we will visit my friend the real-estate agent...

It's slightly confusing because when a lot people (at least in CA) talk about competing with cash buyers it just means the deal isn't contingent on a mortgage. They may very well be mortgaging the property, but the deal isn't going to fall through because they can't secure financing.

Kind of. It means that the person making the offer already has the cash - if it’s a corporate/business purchase that cash may indeed come in the form of financing elsewhere, however the cash is already available so by definition isn’t secured by ownership of your property and so is not a “mortgage”. In a practical sense it likely means something like failing to make a repayment doesn’t automatically give possession of the property they bought.

All that said, in the Bay Area at least a cash offer from an individual means just that: the person buying it likely just sold a ton of stock, or their startup got bought, etc. I personally know people have done that (in some cases out of necessity: sellers favour short closing and no financing issues)

I would be willing to bet special financing is distorting the numbers. There are companies that front borrowers cash to help them compete with real cash buyers.

This is part of it. Contingent offers are always less desirable than non-contingent so you make a cash offer if you can even if you immediately refinance.

I don't think that's a very large market as of yet. But I could be wrong. Hedge funds and other corporate entities are buying up single family homes now. That seems more likely to be pushing more of the trend.

For it to make up a third I’m guessing corporate/private equity purchases in which case I _think_ it is considered good practice to use borrowed money to finance asset purchases if the cost to borrow is lower than the expected return. But plenty of these corps have the cash - depending on where you’re buying houses can be cheap (I had a friend going to uni in Merced, ca and many of the houses there had a list price that was less than just the down payment on my home in oakland). But from a business point of view the average capital gain+rent would probably be above interest on the loan to support it.

A report I read before showed that it's hard for americans to buy a house now. While it seems that the inflation and pandemic don't stop people with enough money from buying a house.

https://www.couponbirds.com/research-center/data/inflation-m...

> Why are there so many cash buyers

Simple, investors discovered that purchasing homes in a market limiting new construction, they can change what ever rent they want. That provides a larger return than what the markets provide.

The only way out of this is if an entity owns say over 5 homes for rental income, property taxes should be increased on these homes to say 100% of value per year. It doubles with each 10 homes owned.

> they can change what ever rent they want

They can’t - rent prices are set by the market

Also in a high interest risk free rate of return is more appealing

Why buy a house that can break down, not rent when you can park it in a bank

Own enough homes in an area and you can control the market.

The Econ 101 supply/demand theory does not work in the highly regulated (mostly to slow down building) housing market.

People pay an irrational amount of income on rent all the time.

> They can’t - rent prices are set by the market

Landlords are part of the market.

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