First-time homebuyers, who are having a very hard time getting back into the housing market, say they are often outbid by all-cash buyers. In markets that were particularly hard-hit by the housing crash, like Phoenix, Las Vegas and Atlanta, they simply cannot compete with investors.
Investors put a floor on prices during the recession, but they also drove them far higher than expected. Institutional investors may make up a small percentage of overall homes purchased since 2012, but they make up a huge share of buyers of distressed, low-priced properties. Also, the impact of individual investors and foreign buyers is largely underplayed. They, too, come bearing cash.
"In short, end-users today are being handed a red-hot potato market already in a bubble larger than 2006," noted Hanson.
The argument is founded in basic mortgage math. The majority of regular, owner-occupant homebuyers today need to get a mortgage to finance the purchase. Unlike during the last housing boom, when money was basically free, they have to have a down payment, good credit and enough income to qualify for the debt.
Even with interest rates today considerably lower than they were during the housing boom, housing today is far more expensive. Buyers can't just pay interest on the loan, they have to pay principal as well. They have to put at least 3 percent down, and if they are using that low a down payment, they have to pay mortgage insurance. The income needed to qualify for a loan today is also far higher than it was then.