Fewer Cash Home Sales Is a Good Sign

NEW YORK (TheStreet) -- Cash sales in housing would seem to signify a healthy economy. After all, excessive borrowing can be a red flag, with defaults and other troubles to follow. And who wouldn't like to be flush enough to lay down cash for a home?

But it's not necessarily so. In the past few years the high percentage of cash sales has indicated a nagging problem -- one that now seems to be easing.

A high percentage of cash buyers means there are not enough traditional homebuyers, the kind that take out a mortgage for a primary residence. First-time homebuyers, for instance, are typically young people without enough cash to buy a home. And, to keep the market healthy, there must be a supply of first-time buyers to replace people who leave the homeownership market later in life, and to keep the home building industry going as the population grows.

A high percentage of cash buyers also means investors are flocking to the market, and they do that only when prices are depressed. Low prices are obviously bad for homeowners who want to sell, and if they persist they discourage buying as well, because no one wants to be stuck with a home that's worth less than they paid.

Also see: How Stagnant Wages Have Trapped the Housing Market

So new data from Zillow.com, the marketing and housing-data firm, hint things are moving in the right direction.

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