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Cash is still king – but from a different kingdom

 

NEW YORK – June 4, 2014 – A record number of homeowners are using the increased equity in their current homes to buy their next homes, and they're paying cash to avoid the mortgage process altogether.

About 29 percent of non-investment buyers used cash to fund their housing transactions in the first quarter of this year – the highest level on record, according to data compiled by Bloomberg.

Baby boomers make up a large bulk of these all-cash deals, says Lawrence Yun, chief economist for the National Association of Realtors®.

"Cash purchases are on the rise because older homeowners who have decades of home-equity accumulation don't want the hassle of a mortgage," Yun says. "With the economy improving and the stock market at record highs, boomers are the ones who are driving the market."

Meanwhile, the share of investors – who usually use cash – is dwindling, dropping in the first quarter to the lowest level since 2010.

"The whole investor class, the ones doing most of the cash purchasing until now, is stepping back," Yun says. "Baby boomers are taking their place."

Baby boomers have more equity than previous generations because they may have owned a home during a 30-year "housing bull market." In April, the median price of an existing-home was $201,700 compared to $67,800 in 1982, when many boomers had purchased their first properties, Bloomberg reports.

What's more, about 16.3 million Americans older than 60 owned their homes outright in 2012, up from 12.1 million in 2009, according to Census data.

Baby boomers are expected to remain a strong presence in the housing market much longer than previous generations, too.

They "will be buying and selling well into their 80s because they are going to be active and healthier for a lot longer than their parents," says John McIlwain, a senior fellow at the Urban Land Institute in Washington. "They are a rebellious generation, and they're not going to go along with the idea of traditional retirement."

Source: "Cash Property Deals Reach Record with U.S. Boomers Retiring," Bloomberg Businessweek (June 2, 2014)

© Copyright 2014 INFORMATION, INC. Bethesda, MD (301) 215-4688

 

Related Topics: Trends