Overall, the cash sales share has declined from its peak of 45 percent in Q1 2011 down to 35 percent for Q1 2016, a decline of about 22 percent, according to Black Knight. But a great disparity remains between the high and low ends of the housing market when it comes to cash sales.
Cash sales still account for the bulk of transactions among homes in the lowest 20 percent of property values in their respective markets. Black Knight reported that 30 percent of sales in the highest 20 percent of property values were cash sales. When it came to the lowest 20 percent of property values, the share of all sales that were cash transactions more than doubled up to 62 percent.
“While down significantly from its peak of 75 percent of all transactions at the bottom of the housing market, this is still quite high for cash sales, historically,” said Black Knight Data & Analytics SVP Ben Graboske. “The prevalence of cash sales at the low end of the market can likely be chalked up to two primary factors. First, negative equity is still higher than average among this segment of the market, resulting in increased distressed discounts for buyers. Second, lower-priced homes simply require less capital to purchase outright, making cash sales possible for more people.”
According to Black Knight, only nine core-based statistical areas (CBSAs) with more than 2,000 home sales in 2015 had a higher share of cash sales for high-end home purchases than the lowest end in the first quarter of 2016—and seven of those nine were located in California.
“The data suggests that, rather than buying distressed or low priced properties at a discount, borrowers in these areas are likely using cash as an advantage in hotter markets,” Black Knight stated.
Click here to view the complete Black Knight April 2016 Mortgage Monitor.
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