Drop in REO Sales is Driving Continued Decline in Cash Sales Share

cashThe share of total residential home sales in May 2015 that was made up of all cash sales was 31.9 percent, down from 35.1 percent in May 2014, according to CoreLogic‘s Cash Sales Data for May 2015 released on Tuesday.

The cash sales share has declined year-over-year every month since January 2013; May’s share marked 29 consecutive months of declines for cash sales as a percentage of total home sales. According to CoreLogic Chief Economist Frank Nothaft, a drop in REO sales has been the main force behind the continuing decline in cash sales share.

Though REO sales comprised more than half of all cash sales in May 2015, REO sales accounted for only about 6.4 percent of all home sales. By comparison, in January 2011 when all cash sales made up 46.5 percent of all home sales, REO sales accounted for about 23.8 percent of all home sales, according to CoreLogic. Resales typically account for the majority of home sales, as they did in May (82 percent).

“The primary reason for the decline in cash sales share has been the drop in REO sales,” Nothaft said. “Since 2009, more than one-half of REO have been bought by all-cash buyers.  The REO share of all home sales peaked at 24 percent in January 2011, and has fallen to 6 percent of sales in May 2015.  The drop in REO sales explains must of the 15-percentage point decline in the all-cash share between January 2011 and May 2015.”

May 2015’s cash sales share of nearly 32 percent was down by 31 percent from the peak of 46.5 percent recorded in January 2011. CoreLogic estimates that if the cash sales share continues to decline at the same rate as it did in May 2015, the cash sales share should fall back down to its pre-crisis level of 25 percent by the middle of 2017.

REO sales still had the largest cash share in May 2015, as they have had historically, with 56.1 percent. It was the only category which experienced a year-over-year cash sales share increase in May, according to CoreLogic. Resales had the next highest cash sales share with 31.5 percent. Short sales comprised 30.1 percent of all cash sales in May, and newly constructed homes accounted for 14.7 percent of all cash sales for the month.

The states with the highest cash sales share in May 2015 were Florida (47.8 percent), New York (45.8 percent), New Jersey (45.8 percent), Alabama (44.2 percent), and Michigan (38.4 percent), according to CoreLogic. Out of the nation’s top 100 core-based statistical areas (CBSAs) measured by population, four of the five with the highest cash sales share were located in Florida: West Palm Beach-Boca Raton-Delray Beach had the highest cash sales share with 58.1 percent. North Port-Sarasota-Bradenton was second with 55.9 percent, followed by Cape Coral-Fort Myers at 55 percent, Detroit-Dearborn-Livonia, Michigan with 54.6 percent, and Miami-Miami Beach-Kendall with 54.6 percent. The CBSA with the lowest cash sales share was Syracuse, New York, with 11.6 percent.

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