NAR: All-Cash Home Sales Keep Increasing

Posted by Patrick Barnard on May 08, 2014 No Comments
Categories : Residential Mortgage

Despite the fact that investor activity in the housing market is on the decline, an increasing number of homes are being purchased with all cash, a report from the National Association of Realtors (NAR) finds.

The report shows that all-cash purchases rose from 29% in 2012 to 31% in 2013 and 33% in the first quarter of 2014.

Could it be that Americans are simply sick of being in debt? Is there a prevailing view that taking out a mortgage for a home purchase is too risky in this current economic environment? Or is the trend more a result of tighter credit? Or rising interest rates? Or could it be the result of homeowners with ample equity trading down from larger homes to smaller ones?

As is to be expected, all-cash sales are strongest in states where home prices are among the lowest in the country. For example, according to the report, more than half of Florida home sales in 2012 and 2013 were all-cash. Nevada, Arizona and West Virginia are other states that saw high levels of all-cash sales.

Meanwhile, the report finds that the percentage of investor activity edged down from 20% of sales in 2012 to 19% of sales in both 2013 and the first quarter of this year.

What's more, there has been a significant decline in the number of foreclosure auctions, which for the past several years have been a major driver of all-cash sales.

‘These findings beg the question as to why we're seeing higher shares of cash purchases,’ says Lawrence Yun, chief economist for NAR, in a release. ‘The restrictive mortgage lending standards are a factor, but the higher levels of cash sales may also come from the aging of the baby boom generation, with more trade-down and retirement buyers paying cash with decades of equity accumulation.

‘Distressed home sales, most popular with investors who pay cash, have declined notably in the past two years, yet the share of all-cash purchases has risen,’ Yun adds. ‘At the same time, investors have declined as a market share, indicating other changes have been under way in the marketplace.’

Distressed home sales declined from 26% of all sales in 2012 to 17% in 2013 and 15% in the first quarter of this year. What's more, NAR forecasts that distressed homes will drop to single-digit market share by the fourth quarter of this year.

Yun cited several possible reasons why all-cash sales in Florida are so high. First is that many older Americans are still retiring in Florida. Many of these seniors have significant equity in their current homes, which puts them in a better position to pay cash when they downsize to a smaller home.

Another recent study by NAR shows that trade-down buyers rose to 29% of buyers last year from 25% in 2012 and 23% in 2011.

In addition, foreign buyers have a tendency to pay all cash – and Florida has been a hot spot for foreign buyers for the past several years.

But these factors don't really account for the increased all-cash sales in states like West Virginia, which saw all-cash sales rise from about one-third of buyers in 2012 to nearly four out of 10 buyers in 2013. Meanwhile, distressed sales and investor activity in that state declined to half of what they had been in 2012.

A recent report form CoreLogic shows that since the recession began in 2008, more than 80% of condominium sales in Florida and Nevada were financed with all cash. According to that report, cash sales made up 41.2% of all home sales in January 2014, down from 43.5% in 2013, but up from 38.4% in December.

As of January, the top five states with the highest share of cash sales for condos included Florida (81.2%), Nevada (80.5%), New York (79.5%), Alabama (75.7%) and Arizona (65.7%), according to CoreLogic. These five states accounted for just over half of all condo cash transactions in the U.S., with Florida representing 36.7% of the total alone.

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