Why Have the Number of Cash Sales Decreased?

The number of home sales that were “all cash” transactions has recently decreased this past fall. These types of sales represented 33.9% or just over a third of all transactions, a decrease by 2.6% year over year according to a report released by CoreLogic.

The number of cash sales has been slowly declining each year since their height back in the beginning of 2011. During that year the number of cash transactions had represented 46.6% of all sales. Prior to 2011 when the market was in full swing, the average amount of cash sales was approximately 25%. CoreLogic anticipates that we will see this rate by mid 2018 should the year over year amounts decrease at the current speed.

So why are the number of cash sales declining? The biggest cause of this trend is the rapid decline of REO sales. When REO sales peaked in January of 2011 they made up nearly a quarter of all residential sales at 23.9%.That number had declined to only 7.3% by this past October of 2015.

The trend of diminishing REO sales has been congruent with the drop in foreclosure activity. CoreLogic reports that the amount of foreclosure inventory has reached similar numbers to 2007 at 1.2%. These numbers are now in line with the market before our most recent economic 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.”

The amount of cash sales were still made up mostly of REO sales for this past October at 59.7%. Runner up were resales at 33.2%, short sales at 31.3.% and new home sales at 16.7%. CoreLogic reported that there were many states where cash sales were still prevalent at levels higher than 40% as of this past October. Alabama showed the most at 51.7% making it the state with the highest amount of cash sales. Following Alabama were Florida, New York, West Virginia and Indiana according to CoreLogic. However, one thing to keep in mind is we do know that some states do have many foreign investors. Namely Florida and New York from this list tend to experience a lot of investing from foreign buyers where many of these transactions are done in cash.