BofA's Michelle Meyer Debunks One Of The Biggest Misconceptions In US Housing

One of the common misconceptions is that the gain in housing demand owes primarily to investors and international buyers. In Q1, investors made up about 22% of sales, which is close to the average since mid-2010. International buyers made up about 2% of sales in Q1, which again matches the historical average over the past three years. Of course, in certain markets investors and international buyers play a bigger role. Investors buy a disproportionate share of distressed properties, making them more relevant in markets with high delinquencies. Similarly, in big cities such as New York, Miami and San Francisco, international buyers account for a much larger share of sales.

Primary homebuyers are still the largest share of the market, by far. However, the constraint for primary homebuyers is tight credit conditions. This has resulted in a greater share of all-cash purchases. Over 20% of buyers who are looking to relocate (turnover) and 60% of second home buyers use only cash. First-time homebuyers are still reliant on financing as only 11% of sales are all cash among this cohort. And of course, the most extreme is investors and international buyers where about three-quarters of purchases are all-cash. All together, about a third of sales are made without financing. As credit conditions gradually ease, which we anticipate, the housing market will open to a wider range of buyers, particularly first-time owners.

Meyer argues a large percentage of the cash buyers are not investors.

Friday economic releases:
• At 8:30 AM ET, the BEA will release the advance Q1 GDP report. The consensus is that real GDP increased 3.1% annualized in Q1.

• At 9:55 AM, Reuters's/University of Michigan's Consumer sentiment index (final for April). The consensus is for a reading of 73.0, up from 72.3.