Shrinking REO Inventory Drives Down Cash Sales Share

A continuing decline in distressed inventory nationwide, particularly REO properties, has resulted in an accompanying continuing decline in the percentage of home sales that are all-cash transactions, according to data released Thursday by CoreLogic.

At their peak in January 2011, cash sales accounted for nearly half of all residential home sales in the United States (46.5 percent). Since then, that percentage has steadily declined; in August 2015, it was reported at 31.7 percent, less than one-third of all home sales—a decline of more than 3 percentage points from August 2014, when it was 34.9 percent.

As has been the historical trend, REO sales made up the largest share of cash transactions at 57.9 percent in August 2015, followed by resales (31.1 percent), short sales (29 percent), and new home sales (15.5 percent). Despite comprising more than half of all cash home sales, REO’s share of all residential home sales remained low in August at 6 percent—about one-quarter off of their peak in January 2011, when they accounted for about 23.9 percent of all home sales. Resales account for about 82 percent of all home sales and have the largest impact on the total cash sales share, according to CoreLogic.

"Distressed sales (REO and short sales) typically sell at a price discount, with REO selling at the steeper discount," CoreLogic Chief Economist Frank Nothaft said. "The discounts are attractive to investors, who can buy with less cash than if the house sold at full/market price, as would generally be the case with a resale or new construction.  Thus, the drop in REO sales is a primary cause of the declining cash share."

Investors typically make up the largest share of all-cash buyers, but their share of all home sales is also declining.

“It’s also true that investors are buying a smaller share of all homes, but that may be related to the decline in REO inventory on the for-sale market,” Nothaft said.

CoreLogic estimates that if the cash sales share continues its rate of decline experienced in August 2015, it will be back to its “normal” pre-crisis average of 25 percent by the middle of 2017.

Despite the consistently declining cash sales share nationwide, the share remains high in some states—in the case of Alabama, the cash sales share was higher than the nationwide January 2011 peak with 47.6 percent in August 2015. Florida (45.2 percent), New York (42.4 percent), West Virginia (39.5 percent), and Missouri (39.5 percent). In some of the nation’s largest metro areas, the cash sales share was more than half: Miami (51.7 percent) had the highest, followed by Philadelphia (51 percent), West Palm Beach (50.8 percent), North Port-Sarasota-Bradenton, Florida (48.5 percent), and Fort Lauderdale (47.7 percent).