Looks like there’s a wave of optimism towards the housing market in the U.S. economy. Mainstream gurus are arguing that, because existing home sales are up and home prices are rising, we have a recovery in the housing market. Let’s put the brakes on for a moment and take a step back. For the housing market in the U.S. economy to enter a growth stage, there has to be increasing amount of first-time home buyers; people who actually buy a house to live in. They are the ones who take out mortgages, buy the new lawn mower, furniture, and other items needed for a new home. But right now, we are seeing the opposite in the U.S. housing market—a lack of first-time buyers, a glut of investors. In October, existing home sales data revealed that foreclosed and distressed homes accounted for 24% of all sales, virtually unchanged from September. At the same time, cash sales accounted for 29% of all transactions in October. Cash transactions were 18% of all transactions in October 2011. (Source: National Association of Realtors, November 19, 2012.). Year over year, we have seen an increase of 61.1% in cash transactions in the U.S. housing market. First-time home buyers do not pay cash. So who is buying these homes? Who has the cash to buy houses? It’s definitely not the first-time home buyers—they are actually declining in numbers. In October, first-time home buyers accounted for only 31% of the purchases in the housing market. In September, first-time home buyers accounted for 32% of sales. A year earlier, in October of 2011, first-time home buyers accounted for 34% of sales. We’ve had a one-year decline of nine percent in the number of first-time buyers in the housing market! So, here is what I think is happening. The housing market is improving only because investors are driving up the home prices in the U.S. economy. Again, it’s investors, not home buyers. Investors are buying in the housing market at an accelerated pace! The chief economist at the National Association of Realtors agrees. He recently stated that all cash transactions in the housing market in the U.S. economy have increased significantly since 2008, as investors and the international buyers are the driving force of the market. (Source: National Association of Realtors, November 10, 2012.) To give you perspective, 66,780 homes in the U.S. economy were bought by the investors in August alone—the highest number of homes purchased by investors since the beginning of the foreclosure crisis! Money runs the point of highest return. For this reason, investors are buying houses, renting them out, and securing a rate of return they consider high and safe. So what ... Read More