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What’s Driving Down the Cash Sales Share?

bank-owned-fiveThe share of homes that were all-cash transactions in October 2015 fell by 2.6 percentage points over-the-year down to 33.9 percent, meaning that of all residential home sales during the month, slightly more than a third were paid for in cash, according to data released by CoreLogic on Thursday.

The cash sales share has been on a steady decline since hitting its peak of 46.6 percent in January 2011. The pre-crisis average for the cash sales share is about 25 percent; CoreLogic estimates the cash sales share will reach that level in mid-2018 if it continues to decline year-over-year at the rate it did in October 2015.

A steep decline in REO sales is the main driver behind the decline in cash sales. At their peak in January 2011, REO sales made up nearly a quarter (23.9 percent) of all residential home sales; by October 2015, REO sales made up less than a third of that total (7.3 percent).

2-4 CoreLogic Graph2The drop in REO sales over the last five years has corresponded with the drop in foreclosure activity. CoreLogic reported in its November 2015 National Foreclosure Report that foreclosure inventory had declined year-over-year for 49 months in a row and was at 1.2 percent—the same level as in December 2007, prior to the crisis.

“Foreclosure completions have fallen substantially over the past few years across the nation,” CoreLogic Chief Economist Frank Nothaft said. “This has led to a drop in REO sales. Roughly one-half of REO homes are bought for all cash. Thus, the drop in REO has been an important reason for the national decline in the cash share of all sales.”

REO sales still comprised the greatest percentage of cash sales for October 2015, at 59.7 percent, followed by resales (33.2 percent), short sales (31.3 percent) and new home sales (16.7 percent). In several states, the cash sales share remained higher than 40 percent in October; in Alabama it was more than half, at 51.7 percent, making it the state with the largest cash sales share during the month. Florida was next with 46.7 percent, followed by New York (46.3 percent), West Virginia (44.4 percent), and Indiana (40.8 percent), according to CoreLogic.

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.
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