Cash buyers threaten real estate market

At an economic summit hosted this week by the Naples Area Board of Realtors, John Tucillo sounded as upbeat as any of the 450 Realtors in the ballroom of the Waldorf Astoria hotel.

After all, home sales and prices are rising, employment is growing, housing demand is increasing, inventory is shrinking and the foreclosure crisis is waning. “Everything that is supposed to be going up is going up and everything that's supposed to be going down is going down,” says Tucillo, the chief economist of the Florida Realtors.

So what worries Tucillo about this rosy scenario? Cash buyers.

“Cash sales have become a larger and larger portion of home sales,” he says. “This is not a good thing in the long run.”

That's because Tucillo says cash buyers tend to be investors who don't have roots in the community where they buy. While they may have a longer-term outlook on their investments than their flipper cousins during the boom, these cash-toting investors could amplify another real estate downturn because they're more likely to rush to sell if the economy slows.

Tucillo's concern also extends to lenders, who he says are holding back a healthier real estate recovery because of the difficulty buyers have obtaining mortgages. “Down the line, we have to see a greater balance,” he says.