The All - Cash Investor -- Bringing Balance to the Housing Crisis

Supply, demand, and price — the three indisputable factors of economics on display during our current housing crisis. The supply of unsold homes, high unemployment, a sluggish economy,

restricted lending, and the emerging renters’ market work together to affect both the consumers’ ability to afford a home and pushes down demand.
As a result, prices on unsold inventories fall in the hopes of stimulating demand to reduce supply, which in turn affects the equity of surrounding homes. President Obama recently declared the housing market as the biggest “headwind hurting the U.S. economy.”

It’s no secret that the inventory of foreclosed homes isn’t going away any time soon, and the glut continues to send home prices downward. However, a new class of all-cash investor has emerged to bring balance to the equation and inject some much-needed hope into the housing industry.

According to the National Association of Realtors, approximately 1 million homes were sold to investors in 2010 and the 1st quarter of 2011 saw even more activity from deep-pocket buyers. Las Vegas, holding the unenviable title of “Foreclosure King“ with 1 in 9 homes in default at the end of 2010, saw all-cash investors snap up almost 5,000 homes just this past April alone. The same trend played out in California, where all-cash buyers accounted for nearly 31% of sales in January of this year. Sales activity in these two states clearly illustrate that the harder a market is hit with defaults, bargain prices are bringing a higher percentage of all-cash deals. The housing crisis has presented real estate investors with opportunities not seen in years, and investors from all over the world are stepping up to the plate.

The current property buying spree is not only providing all-cash buyers with profitable investment vehicles, it’s also providing significant support for a floundering residential real estate market waiting for the economy to improve enough to allow “average” consumers back into the game. All-cash investors accounted for as much as one-third of all home sales this year which helped bolster real estate sales figures and keep realtors employed, not to mention the impact of clearing the backlog of distressed properties from lenders’ books. As lenders’ tight credit standards make it more difficult for buyers to obtain loans, the all-cash buyer fills an important void in the purchase cycle. Moreover, with rehab needed on many of these distressed properties, investors are driving much needed business toward contractors to prepare properties for a future sale or rental. All in all, all-cash buyers have definitely given the housing industry a much needed boost.

Analysts predict that the inventory of foreclosed properties will continue to place downward pressure on home values through 2012. While the economy is showing signs of recovery in many sectors, that recovery has not fully extended to residential real estate. All-cash investors are a crucial component in maintaining the equilibrium in the real estate supply-demand-price formula. And as a result of this pivotal role, they’re not only keeping the industry moving, they also stand to be rewarded with strong returns and a great upside potential.