Real Estate: Is Cash Still King?

While cash sales are still an extremely important segment of the transactional real estate market, the percentage has been declining!

Since the financial crisis the stories of investors swooping in to purchase properties for cash along with foreign buyers from countries such as China and Russia have been common.

Add to that mix the fact that tighter underwriting standards by lenders have complicated the financing of purchases for all but the most pristine borrowers.

Is Cash Still King In Real Estate?

A study released today by CoreLogic examines this issue…

Cash Sales Accounted for 34 Percent of All Home Sales in April 2015 
Lowest Cash Sales Share Since September 2008

Cash sales accounted for 33.7 percent of total home sales in April 2015, down from 37.4 percent in April 2014. The year-over-year share has fallen each month since January 2013, making April 2015 the 28th consecutive month of declines. Month over month, the cash sales share fell by 0.9 percentage points. Due to seasonality in the housing market, cash sales share comparisons should be made on a year-over-year basis.

The cash sales share peak occurred in January 2011 when cash transactions accounted for 46.5 percent of total home sales nationally. Prior to the housing crisis, the cash sales share of total home sales averaged approximately 25 percent. If the cash sales share continues to fall at the same rate it did in April 2015, the share should hit 25 percent by mid-2017.

Figure 1 shows the historical trend in the national cash sales share by sale type. Real estate-owned (REO) sales had the largest cash sales share in April 2015 at 56.6 percent and was the only sales category to see a year-over-year increase in the cash sales share. Resales had the next highest cash share at 33.3 percent, followed by short sales (30.4 percent) and newly constructed homes (15.3 percent). While the percentage of REO sales that were all-cash transactions remained high, REO transactions made up only 7.4 percent of all sales in April 2015. In January 2011 when the cash sales share was at its peak, REO sales made up 23.9 percent of total home sales. Resales make up the majority of home sales (about 81 percent in April 2015), and therefore have the biggest impact on the total cash sales share.

Figure 2 shows the cash sales share by state for April 2015. Florida had the largest share of any state at 51.4 percent, followed by Alabama (48.5 percent), West Virginia (48.3 percent), New York (45.4 percent) and Kentucky (41.4 percent). Of the nation’s largest 100 Core Based Statistical Areas (CBSAs) measured by population, West Palm Beach-Boca Raton-Delray Beach, Fla. had the highest share of cash sales at 59.1 percent, followed by North Port-Sarasota-Bradenton, Fla. (58.5 percent), Cape Coral-Fort Myers, Fla. (58.1 percent), Detroit-Dearborn-Livonia, Mich. (58.0 percent) and Fort Lauderdale-Pompano Beach-Deerfield Beach, Fla. (56.9 percent). Syracuse, N.Y. had the lowest cash sales share at 11.0 percent.

[1] Adequate data was not available for South Dakota and Vermont, and as such, cash sales shares are not reported for these states.
[2] The cash sales share for CBSAs listed in this report was calculated using cumulative sales from the past three months.

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Article author Michael Haltman is the President of Hallmark Abstract Service in New York.

HAS is a provider of title insurance in New York State for residential and commercial real estate transactions.