Cash Sales Invigorating Housing

The housing market appears to be bottoming out due to cash buyers snapping up bargain priced homes in places like Miami and Phoenix, according to the WSJ.

Buyers in markets around the U.S. are snapping up homes in all-cash deals, betting that prices are at or near bottom and breathing life into some of the nation's most battered housing markets.
. . .
Residential real estate has been slower to bounce back than stocks, but the presence of apparent bargains is luring in newly confident buyers.
. . .
A few days later, Ms. Hall-Busch, 62, got a call about a 1918 bungalow with three bedrooms and one bathroom listed for "short sale," which in the real-estate world means at a price lower than what's owed on it. The home had been on the market for $159,000, then dropped to $129,000 and then to $79,900.

"I offered them 50," she said. "I figured, it wasn't like I needed a place to live. I can afford to be a little cocky here."

Ms. Hall-Busch closed in October for $52,500 and began renovations within weeks.

It doesn't matter that I think this is a little premature, a larger principle is at work. When the housing bubble deflates or any other asset bubble, buyers move into the market to snap up bargains. In housing and in many other areas, that initial investment is followed by renovation and restoration, causing an uptick in economic activity. This is why I have repeatedly said that the official policy of the government should be to let housing prices fall to free market levels. Through its various attempts to prop up the market, including the failed HAMP program, they have damaged the economy by delaying the deployment of fresh capital into the market.

Now, if we could just shut down Freddie, Fannie and HAMP, and get on with an economic recovery.