Cash is king

Cash sales have increased in recent years and this has contributed to the stabilization of the residential housing market and helped lead the recovery, according to Core Logic.

In the early 2000s, cash sales averaged 25% of all home sales. In 2005, cash and mortgage sales peaked, but mortgage sales decreased to 78% by January 2011. In comparison, cash sales eventually declined 47% and bottomed out in January 2009. Since January 2009, cash sales have risen 39%, which is more than three times the 10% rate of mortgage sales.

In 2007 and 2008, cash sales increased due to distressed sales (both short sales and foreclosures). It was cash sales that provided the floor for home prices in 2009. By 2012 cash sales comprised 40% of sales and have since ticked down to 39% as of May 2013.

Analysts believe that without cash sales, home transactions and prices would be lower. Median prices for cash sales are up 24% from a year ago, while prices of home sales overall have increased 15%.

The increase in home prices is expected to decrease cash sales and they are expected to fall to their typical level, according to Core Logic.

During the past recession, there was a surge of cash in corporate balance sheets.

This surge represented the highest amounts ever reported and contributed to the rapid expansion of currency in circulation. The real estate market benefited from these developments. Cash sales increased in every real estate market segment across the country. According to Core Logic, cash sales of homes have peaked and now are receding.

Prices of homes, excluding foreclosures and short sales, have surged. A larger percentage of buyers for non-distressed homes are investors. This marks a shift in investor purchasing to non-distressed properties.

A concern is that first-time buyers are having difficulty in purchasing a home. These buyers are important to sustaining the real estate market as are homeowners wishing to upgrade. They also drive new-home construction.

Given low inventories of homes for sale, young buyers are competing with bidders having cash. Also, young buyers are having difficulty in qualifying for a loan, usually, because of student loans. The median age of first-time buyers was 31 in 2012.

The number of first-time buyers has been trending down in recent years. In May 2013, first-time buyers were 28% of existing-home sales, which is a decrease from 34% a year ago, according to the National Association of Realtors.

The next generation should have an opportunity to buy a home and accumulate wealth.

The Millennials have more practical requirements for a home than their prior generation. Energy efficiency, close to transportation and being close to town are some of their key priorities.

 

Mary Ann Clark is a Realtor with Coldwell Banker at 177 West Putnam Avenue in Greenwich. Questions or comments may be emailed to [email protected]

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