More American Homes Sold through Complete Cash Transactions: Goldman Sachs Survey

Posted by Rapti Gupta on Aug 16, 2013 05:13 AM EDT
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Property tax revenues for U.S. states and local governments reached a record high in the final quarter of 2013, according to Census data released on Tuesday showing the housing recovery is finally reaching school districts and cities' budgets. (Photo : Reuters)

Almost all homes that sold in 2012 and in the first half of 2013 were financed by all-cash transactions, a new survey by financial firm Goldman Sachs Group found.

The study claimed that the amount of complete cash transactions more than doubled over the past seven years (since the housing crash) and reached a striking 60 percent in 2013. Apparently, cash transactions constituted 30 percent of the total home sales before the housing bubble burst.

Check out the graph of the survey, here.

A lesser number of homes are being financed through mortgage loans. Mortgage lending has also tightened since the bubble burst and background checks, down payments and asset possessing transparency are being done now with utmost diligence. Private lenders are more apprehensive about lending after the crisis.

According to the Wall Street Journal, the immense cash investment has contributed largely to the housing recovery. Though the study does not point out the source of all cash transactions, it is presumed that most of the 'large dollar bills' are being invested by wealthy foreigners, business firms or affluent investors. This means that the middle class population is probably still left underwater or struggling with mortgage payments.

A feature at claims that the trend might continue. If mortgages weren't used earlier, they probably won't be used now as interest rates get higher and home prices soar.

According to the feature:

Due to the very thin marginal source of bidside interest (flipper flipping to flipper and so on), it means that most of America has not participated in this mirage "recovery", and all it will take to send the buoyant housing market crashing is for the one marginal buyer to become a seller. What they will next find, is that when dealing with a bidside orderbook that has zero depth, one indeed takes the escalator down from where the lofty heights achieved courtesy of Fed-funded stairs.

Buying with cash has its perks. One can avoid the strenuous paperwork, close the deal quickly and sometimes even avail a 'liquidity discount'. However, how many people can really afford an all-cash transaction? Are more Americans really moving toward achieving the so-called "American Dream"?

In his recent economic speech, U.S. President Barack Obama touted for more power to the middle class population.

"Today, our housing market is healing. Now we have to build on this progress. We give to more hardworking Americans the chance to buy their first home. We have to help more responsible homeowners refinance their mortgage. And above all, we have to turn the page on the bubble-and-bust mentality that created this mess and build a housing system that's durable and fair and rewards responsibility for generations to come," he said.

Watch the speech, here.

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