The jump in cash sales is likely a knee-jerk reaction to the new documentation and disclosure rules for mortgages that took effect in October, making it even more difficult for buyers using financing to compete with cash buyers in the already competitive housing market.
RealtyTrac November home sales data derived from publicly recorded sales deeds shows the share of cash sales jumped to 38.1 percent of U.S. single family home and condo sales during the month — up from 29.8 percent in October and up from 30.9 percent a year ago to the highest level since March 2013, when 38.8 percent of all sales were all-cash. The 23 percent year-over-year increase in share of cash sales nationwide followed 29 consecutive months of annual declines in the share of all-cash home sales.
“The jump in cash sales is likely a knee-jerk reaction to the new documentation and disclosure rules for mortgages that took effect in October, making it even more difficult for buyers using financing to compete with cash buyers in the already competitive housing market,” said Daren Blomquist, vice president at RealtyTrac. “Global economic instability may also be driving more foreign cash buyers back to the relative safety of U.S. real estate.”
Major metro areas (population of at least 1 million) with the biggest annual jumps in share of cash sales were San Francisco (up 89 percent), San Jose (up 74 percent), Columbus, Ohio (up 73 percent), Milwaukee (up 71 percent), Providence (up 59 percent), and Portland (up 53 percent).
“Many factors have increased the use of cash in the marketplace. including continued activity of institutional investors, large equity buyers seeking negotiation advantage in a low available inventory market, as well as an increase in immigrant purchasers whose culture prohibits use of debt instruments in making purchases,” said Michael Mahon, president at HER Realtors, covering the Cincinnati, Dayton and Columbus markets in Ohio. “As we approach 2016, available market inventory is predicted to be much of the same. As interest rates continue to rise, and new government regulations create added hurdles for some consumers to qualify for mortgage financing, predictions are for cash sales to account for more than one-third of the closed residential transaction volume for much of 2016 across the Ohio markets.”
“Given that we saw spikes in cash sales at the state, as well as national level, we can assume that this was not a geographically isolated incident and that there were more fungible reasons for it,” said Matthew Gardner, chief economist at Windermere Real Estate, covering the Seattle market, where 31.9 percent of all home sales in November were cash sales, up 38 percent from a year ago. “We tend to see seasonal spikes in all-cash home sales in the winter months but this jump was somewhat exaggerated. I believe that we can attribute this to the remarkably tight housing market in Seattle. Buyers that have the ability to pay cash understand that they are in an enviable negotiating position when offers are being reviewed.”
Major metro areas with the highest share of cash sales in November were Miami (59.7 percent), New Orleans (54.8 percent), Oklahoma City (51.4 percent), Tampa (50.6 percent), and Orlando (49.9 percent).
“One reason for the cash sales are we a world destination for flight/security money,” said Mike Pappas, CEO and president of Keyes Company, covering the South Florida market. “We have strong Central and South American interest in creating a safe haven for their families. The new mortgage rules do make it more difficult for these individuals to qualify for a conventional mortgage as their income source is not in the U.S.”
“We did experience tighter inventory than last November and December, which can cause an increase in multiple offers, which certainly can contribute to a higher number of cash transactions,” said Greg Smith managing broker with RE/MAX Alliance, covering the Greeleymarket in Colorado. “It will be interesting to see how Q1 2016 plays out. After visiting with our other brokers, it seems more sellers are holding off to place their homes on the market for spring 2016.”