Cash Is King

One aspect of the paucity of bank financing is a much, much higher proportion of people buying residential homes without bank financing at all.

That is, with cash.

All-cash purchases accounted for 42% of all sales of residential property in November 2013, up from 39% during the previous month, according to data from real-estate data firm RealtyTrac released Friday. “This is still a very cash- and investor-driven market,” says Daren Blomquist, vice president at RealtyTrac.

What is the interplay between interest rates and the prevalence of all-cash residential real estate transactions?

When interest rates went up slightly in June, there was a notable increase in cash sales, Daren Blomquist says. “Some markets are more interest-rate sensitive than others based on affordability,” he says. “Just a slight increase makes homes a lot less affordable.” In fact, another report by Goldman Sachs in August was even more strongly in the cash-is-king camp, estimating that cash sales now account for 57% of all residential home sales versus 19% in 2005. Walt Molony, a spokesman for the National Association of Realtors, says that the association’s estimate of the share of the market made up by all-cash buyers is lower than others’, at 31% in July, but that it’s still at an all-time high.

Who are all these people buying residential real estate without having to go to a bank for a mortgage?

Molony says that investors make up 32% of all-cash buyers (70% of all investors pay cash), up from 31% in October and 30% in November 2012, while retirees who’ve built up equity in their homes or paid off their mortgages account for around 12%. The rest include vacation-home buyers and foreign buyers.  (emphasis supplied)

The homes-as-worldwide-casino racket is hard to quell.  It was a great game for banks prior to ’08.  It has devolved to less regulated “investors” that of course include “foreign buyers”.

People want a place to live; actually, they need a place to live.  And if they don’t have one, or the cash to buy one, they are fodder – patsies, chumps – for any gambler trying to make a quick score, whether a bank or a well-off “investor” or a “foreign buyer”.

If this seems vaguely immoral, that’s because it is.  The libertarian language of the “free market”, although I am generally in agreement with it, begins to break down a bit at this margin.  Because the just and proper exercise of freedom can only exist where there are certain minimum standards of character, meaning the practice of virtue, one of the cardinal virtues being justice.

Put simply, people have to have a sense of being fair to one another.

There is no grand socio-economic organizing principle or form of government that can overcome the general collapse of character in the people.

It’s an old lesson, at least as old as the republic itself.

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