NAR: all-cash sales levels are expected to remain elevated

Since October 2008, the National Association of Realtors (NAR) has been tracking all-cash transactions, when it was merely 15 percent of purchases. NAR’s most recent data, derived from the Realtors Confidence Index Report reveals that despite declines in distressed sales and investor activity, all-cash purchases are on the rise, but why?

Consider distressed home sales. They dropped from 26 percent in 2012 to 17 percent in 2013, and 15 percent in the first quarter of 2014. NAR forecasts that distressed home sales will dip into single-digit territory in 2014.

Meanwhile, all-cash purchases rose from 29 percent in 2012 to 31 percent in 2013 and 33 percent in the first quarter of 2014 – half of all homes sold in Florida were bought with cash.

Predicting the future of all-cash sales

Although the trade group forecasts sales levels, including distressed sales, they do not forecast all-cash sales, but tell Realuoso that they expect all-cash sales to “remain elevated – at least for the near future,” according to Walt Molony, Economic Issues Media Manager for Public Affairs at NAR.

Molony noted that over the last year, all-cash sales averaged 31 percent of all transactions, where they’ve been since late 2010, but historically, they typically over in the single-digit range. “Much of this is due to investors, who account for about one out of five purchases over time, and seven out of 10 investors in our monthly data pay cash. Other cash buyers include trade-down/retirement buyers using decades of equity accumulation, vacation-home buyers, some upper-end activity and international buyers.”

So why are all-cash sales at these levels?

“The simple reason for these elevated levels is the unnecessarily restrictive mortgage underwriting practices, including reliance on arbitrarily high credit scores,” Molony notes. “There is some indication this is beginning to ease, particularly on the credit score side, but it’s still tight by historic standards.”

After years of Edward DeMarco at the helm of the Federal Housing Finance Agency (FHFA), the reigns have been turned over to Obama-appointed Mel Watt who appears to be softening the Agency’s attitude toward the market, noting that he will be seeking ways to ease lending standards, in line with what NAR has long been pushing for – reasonable lending.

Molony notes that investors have retreated to their normal market share, but in 2011 they were 27 percent of buyers and in 2012 they were 24 percent.

“With the evaporation of lower-priced inventory that was most popular with investors, and a gradual easing of the restrictive lending environment, the level of all-cash purchases will gradually decline, but no major change is foreseen this year,” Molony added. “We’re hopeful for more normal market conditions in 2015, and we expect sales to gradually trend up through next year as a result.”