"The 'all-cash' metric is something I consider of paramount importance. In fact, it was one of my top smoking guns even at 30%...half of Goldman's estimates. I used to think they were the 'incremental buyer" cohort, fully responsible for distorting the market. But as it turns out they are the "primary" buyer cohort. Even during the bubble years, those using exotic loans to squash affordability and drive prices were the minority...a true 'incremental buyer'. I have made the case for a long time that when this pool of 'coincident capital' -- that isn't constrained by 'petty' things such as a mortgage lender looking at income, assets, and a of all things, a "residential appraisal report' -- goes flat, then look out. But at 50% to 60%???!!!!...the market will literally crash if even a third of this cohort shuts it down. God forbid if the early in's turn into net sellers.
"And if the guys holding all the supply view the builder stock price rout as a key leading indicator such as I, perhaps this explains why in July I began tracking large up ticks in for sale supply in the most bubbly regions -- the regions institutional money are most concentrated --across the nation.
"Certainly, I knew the 'all-cash' metric was higher than NAR proclaims. Especially in the PE favorite, former bubble, high-beta regions that are responsible for most of the hype and skewing of numbers to the positive. But nearly 60% of all sales nationally being for cash is insanity defined. Even if Goldman is wrong and 'all-cash' is at 43% -- between NAR and GS estimates -- it represents a clear and present danger to 'this' market, near, mid, and long term. It shows clearly just how structurally broken this market is and also why builders can't sell their way out of a wet paper bag, even after years and years of the Fed stepping on rates, the gov't outright outlawing foreclosures, and the banks & gov't creating millions and millions of new-vintage, higher-leverage worse than Subprime loans (Mortgage Mods) in an effort to stomp out supply.
"This pool of coincident capital will go away as quickly as it appeared...and most of it at or around the same time because the lions' share was activated on the same trigger, is coming from the same place, and has the objectives."What I know is this: With our desire to move back to San Diego, we have been watching the housing market there closely for well over a year. The velocity of the rise in prices in such a compressed amount of time was not just disheartening for potential buyers (us!) but appeared irrational and unsustainable. Even if cash buyers continue unabated, the rise in rates is already taking the edge off the other half of the buying pool. (Just ask any mortgage broker) The simple rules of economics suggests a return to the mean. The only trouble is: does that mean falling off a cliff or just leveling off? That's a bet I wouldn't take for a simple reason: I'm not in the business of betting against myself. --Written by Herb Greenberg. Follow @herbgreenberg