If it wasn’t for cash sales during the housing downturn, sales today would look much weaker, and the dramatic price declines over the past few years would have been even steeper, according to the latest MarketPulse report from CoreLogic.
According to the report, from 2000 to 2005, cash sales remained steady, representing around 25 percent of all sales. When the real estate market crashed in 2007 and 2008, the share of cash sales—driven by the rise in REOsales—jumped and eventually peaked above 40 percent two years ago.
While cash sales still remain elevated, they are past their prime point and are slowly fading.
For 19 straight months now, cash sales have been declining gradually on year-over-year basis.
According to the data provider, cash sales represented 39 percent of sales in May 2013, down from 40 percent a year ago.
Cash sales have also provided a major boost to prices in certain markets. Overall, CoreLogic stated median prices for cash sales increased 24 percent year-over-year compared to 15 percent for all sales.
CoreLogic also examined cash sale trends among the 10 largest markets.
According to the report, the idea that hardest hit markets have the largest share or increase in cash sales is a “myth.” For example, New York actually had the highest cash sales share at 53 percent, though hard-hit markets such as Riverside, California, and Phoenix also held high shares that exceeded 40 percent.
Interestingly, in some markets, investor activity has shifted from REO and short sales to non-distressed sales, leading an a surge in prices for non-distressed cash resales, CoreLogic explained.
The markets where prices for non-distressed cash sales increased the most year-over-year in April this year were Atlanta (+46 percent), Phoenix (+34 percent), and Riverside (+28 percent).
As cash sales wane with investor activity, the data provider pointed to the need for traditional and first-time buyers to play a bigger role in housing to help the recovery move forward.
However, CoreLogic concluded “rising rates and home prices will not dissuade the more traditional buyer from entering the market and financing a home purchase” since home affordability remains high and supply is increasing.
By Esther Cho