Comments on: Same-House Sales

By: Jasper Lamar Crabbe

Jasper Lamar Crabbe — Mon, 13 Jul 2009 21:39:39 +0000

Glad to see we have lot of economics majors in the room. Does anyone go to college anymore? You may be bankrupt, but the country isn’t.

The cash comes from many places including from legitimate biz people who worked hard and lived within their means. (Read “The millionaire next door” for details.)

Six percent return is six percent return, regardless of investment. The only inflation hedge you have is TIPS, as someone mentioned.

If we have hyper inflation, the cash payers lose, if we have deflation (both long term) they win.

You make the call.

By: JK

JK — Mon, 13 Jul 2009 20:29:53 +0000

All these sales are $1MM+

Doesn’t surprise me that upscale homes involve more equity / cash. After all, who can / wants to support a $1MM+ mortgage?

By: Jim the Realtor

Jim the Realtor — Mon, 13 Jul 2009 16:02:42 +0000

Working on next post with answers to questions posed.

By: Locomotive Breath

Locomotive Breath — Mon, 13 Jul 2009 15:31:30 +0000

Very good conversation folks, a lot of fun!

I have the same questions as Mozart Jim…are these just the most interesting $1M+ sales, or typical?

By: Mozart

Mozart — Mon, 13 Jul 2009 15:11:47 +0000

Are these the only sales in the +$1MM range or only the most interesting?

These samples seem to indicate that the sellers priced in a discount and took the offers within 30 days.

The others that sat took the biggest hits.

I’ve heard that cash buyers refinance after closing the deal.

By: Local Boy

Local Boy — Mon, 13 Jul 2009 15:00:10 +0000

NKC–I didn’t know our nation was BK–Thanks for letting us know!

By: NKC

NKC — Mon, 13 Jul 2009 03:53:21 +0000

Would be interesting to find out who is the person or persons buying on cash.

I don’t get it where is the cash coming from in a bankrupt nation? Also, if there is cash around then why the TARP program. Something is strange!!

By: Spotty

Spotty — Mon, 13 Jul 2009 03:31:27 +0000

Average Joe wrote: “I thought every savy investory “knew” that it’s stupid to pay cash for a home when you can borrow at such tax friendly historically low rates! Why are they so willing to tie up so much cash?”

For the simple reason that many savvy investors can’t find alternative investments that safely return enough to pay interest on a loan. Think of it this way. Suppose you have a million bucks. You want to buy a house. You can use your million, or borrow someone else’s million. But if you borrow the million you have to pay that person (or bank) to let you use their money. For that to be a break even, you then have to invest your million and get enough to pay the interest on the million you borrowed. And that’s the rub. Suppose you got a mortgage at 4.25%. Yeah, great rate but where are you going to earn 4.25% on your investment without taking a good bit of risk in today’s environment? The stock market? Lots of savvy investors tried that, and it didn’t turn out so well lately. Maybe bonds issued by a big blue chip company, like or I don’t know, GM, or Chrysler, or how about a bank, like Lehman Bros.?

Maybe someday, some honesty and sanity will return to our investment world, but with the current situation I’d prefer to use my money to buy a house, than borrow someone elses money and try to invest mine.

Spotty

By: Potemkin Villager

Potemkin Villager — Mon, 13 Jul 2009 03:31:10 +0000

sdbri,

I didn’t see your reply before I posted my previous note. I don’t disagree with the way you phrase the savings issue. It’s certainly true that you can lose money on any house. I don’t think anyone would question that. So, perhaps my earlier statement could have been more artfully phrased.

By: Potemkin Villager

Potemkin Villager — Mon, 13 Jul 2009 03:24:28 +0000

Hi Erica,
I did say “assuming you want to live in the home.”
So, if they want the house and they take out a loan, they will be in debt to the bank for the same amount that they would have paid in cash. They would have the same potential risks you mention, but they would owe the money to the bank and pay interest on it. Whether or not houses are the best current investment isn’t an issue for me.