Real Estate C(r)ash Sales

The Great Recession led to a surge in cash sales that heavily contributed to the stabilization and recovery in the residential market. Over the past two years however, cash sale shares peaked and are currently receding. Going forward, for the market to continue to recover, trade up and first time home buyers have to replace the declining share of cash buyers in the market.

In the first half of the last decade, the cash sales share of total home sales was fairly steady, averaging 25 percent of all sales (Figure 1). As the real estate market slowed down and collapsed in 2007 and 2008, the cash sales share quickly rose thanks to a rise in REO sales, which exhibit higher cash sales shares relative to other sale types. By 2009, every type of sale was experiencing increases in the cash sales share (Figure 2) and the overall share began to stabilize during 2010. In May 2013, the cash sales share was 39 percent, down from 40 percent a year ago, and it has been slightly down on a year over year basis for the last 18 months.

Regional Developments

It is a myth that the hardest hit markets have the largest shares or increases in cash sales. Examining the largest 10 metropolitan areas (Figure 3) reveals that New York has the highest cash sales share at 53 percent, while Washington DC has the lowest share at 19 percent. While it is not a surprise that markets like Riverside and Phoenix have cash sales shares exceeding 40 percent, some markets like Chicago and Philadelphia also exhibit similar cash sales share levels, which is more due to a weak level of mortgaged sales versus outright strength in cash sales like in Phoenix and Riverside.

All 10 markets exhibited moderate to large increases in cash sales compared to during the boom. Los Angeles is the clear leader where the cash sales share rose from 7 percent in 2005 to 34 percent as of May 2013. Riverside and Atlanta have also exhibited very large increases in cash sales shares relative to 2005. The markets that experienced the smallest cash share increases include the Texas markets of Dallas and Houston and affluent markets such as Washington DC and New York.

 

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