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Continued Cash Sales Decline Speaks to Stabilization of Housing Market

cashJune 2015 marked the 30th consecutive month of year-over-year declines in the share of all home sales that were cash transactions, according to data released by CoreLogic on Tuesday.

Cash sales comprised 31.3 percent of all home sales nationwide in June, down by more than two and a half percentage points from a year earlier, when the cash sales share was 33.9 percent, according to CoreLogic. The cash sales share has declined by more than a third since reaching its peak of 46.5 percent in January 2011.

The category with the largest cash sales share in June 2015 was REO sales with 57 percent; REO was the only sales category to see a year-over-year increase in cash sales share during the month, according to CoreLogic. The category with the next highest cash sales share was resales with 28.7 percent; resales have the biggest impact on total cash sales share because they typically make up the majority of home sales, as they did in June 2015 (83 percent). About 15.6 percent of newly constructed home sales were cash transactions in June.

Much like cash sales, distressed sales (REO and short sales) have been slowly but steadily declining since reaching their peak at the depth of the financial crisis. The distressed sales share peaked at 32.9 percent in January 2009 but in June 2015 it was reported at less than 10 percent, according to CoreLogic.

"[M]any of the cash sales were from institutional investors coming into the housing market to buy low-priced properties. Therefore, a decrease in cash sales is an indicator that the housing market is becoming more stable."

“The decrease in cash sales can be linked, at least in part, to the decrease in the share distressed sales," CoreLogic Senior Economist Molly Boesel said. "Distressed sales have higher cash shares, so when the distressed share falls, distressed sales have a smaller impact on the overall cash share. It is notable though that the cash share of healthy sales is also decreasing, and I don't know if that can be directly linked to the decrease in distressed sales."

The decline in distressed sales may be good news for the housing market, however.

"Cash sales were a crucial piece of the demand needed to clear out distressed sales," Boesel said. "For example, many of the cash sales were from institutional investors coming into the housing market to buy low-priced properties. Therefore, a decrease in cash sales is an indicator that the housing market is becoming more stable. A decrease in cash sales share may also be an indicator that larger share of buyers are able to obtain mortgage credit.”

In June 2015, some states came close to or even exceeded the national peak reached four and a half years ago; for instance, New York's cash sales share was 47 percent in June 2015, the largest share for any state. Florida (45.8 percent), Alabama (44.8 percent), New Jersey (40.7 percent), and Oklahoma (39.6 percent) were close behind. The top five metro areas for cash sales share all exceeded 52 percent: West Palm Beach (55.5 percent), Philadelphia (55.1), North Port-Sarasota-Bradenton (54.5), Miami (53.5), and Detroit (52.9). The Washington, D.C. metro area had the lowest cash sales share in June 2015 at 13.4 percent, according to CoreLogic.

Though more than a quarter of REO sales were cash transactions in June, REO sales made up only about 6 percent of total home sales during the month. During the peak month of January 2011 for cash sales, REO properties made up about 23.8 percent of all home sales.

Prior to the crisis, cash sales averaged about 25 percent of all home sales per month; if the cash sales share continues to decline at the same rate as it did in June 2015, it will drop to the 25 percent level by the middle of 2017, according to CoreLogic.

9-29 Cash Sales 2

 

9-29 Cash Sales 1

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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