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In December 2014, national cash sales on single family homes made up for about 35% of the total of all home sales. WOW!! However, if we turn the clock back a year we find the cash sales in December 2013 made up 38.5% of the share; so why is this figure falling and should we be worried by it? Now, I’m not saying that this # is the best gage of the real estate market, but we definitely should watch it.
The percentage of cash sales on homes has been declining steadily since January 2013 and every month that follows the figure goes down a little more. Now, December 2014 was the 24th month on the bounce where cash sales – as a percentage of all home sales – were down.
Usually the drop each month would only be around half a percentage point but because there are seasonal variations, the figures should be taken as a year-on-year representation rather than a month by month one. If you are a real estate agent, you definitely understand that.
So, why are we still seeing a decline in the amount of cash sales. Turn the clock back just a little to January 2011 and you’d be amazed to learn that cash sales made up 46.5% of all home sales.
It has to be a strong possibility that mortgage lenders were tightening up and not loaning out to any Tom, Dick or Harry and that if you wanted to buy a home, you had to pay up, especially if you were a foreign buyer.
If we turn the clock back even further to the days before the housing crisis started, you will see cash sale figures of just 25%! Astonishingly low, but consider that these were the days when mortgage lenders were falling all over one another to lend money for home purchases. After the housing crisis hit in 2008, lenders were ordered and compelled to tighten up mortgage lending, leaving the majority of those home buyers post-housing crisis to stump up the cash, rather than getting a mortgage.
We are expecting the levels we saw in 2006 (approximately 25% cash sales of all home sales) to return again once more. We are not saying that irresponsible lending is likely to make any sort of quick return, (although look at Freddie Mac’s latest announcement of 3% downpayment loans back again), but we can expect the cash sales figures to dip back to somewhere around 25% over the next year or 2.
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