“We recently have mined our public records database to determine the cash sales share…We can tell from there which properties were purchased with mortgages. It’s very clear that compared to the boom period (2004-2007) cash sales are a much bigger share,” Molly Boesel, senior economist at CoreLogic, told this publication Friday.
“They are starting to come down a little,” she said, noting that CoreLogic’s data show they represented about 39% of home sales by count this May as compared to 40% a year ago.
The percentages are higher during the winter months, she said, noting that by count in January and February, for example, percentages were closer to 44%.
“When you get into the hot seasons particularly, spring and summer, the market is flooded with what we like to call ‘healthy home sales,’ not REO/distressed,” Boesel said, noting that from March to September, home sales are “typically going to come with mortgages.”
Distressed sales are something the market “saw a lot of in the crash,” she noted, accounting for the contrast between cash sales between 40 and 50% of the market today and 23% in June 2006, at about the peak of the housing boom before the crash.
As previously noted Goldman’s estimates based in part on CoreLogic data on a four-month moving average basis and provided by dollar volume and count are higher, above 50%. But Goldman’s researchers acknowledge this is a rough figure and noted that the aim of their data was less about an exact percentage and more to highlight the contrast between post- and pre-2008, when the dollar amount of cash transactions was estimated above 30% and count was closer to 20%.
“I think Goldman’s number is pretty close,” she said. “Typically we haven’t had a lot of good measures of cash sales so it’s good to see these are lining up.”
Although data are somewhat limited, statistics available suggest today’s levels of cash sales are extraordinary. “It’s really hard to find a ‘normal’ period in the housing market,” she said, but suggested the pre-2004 period captured by a data series CoreLogic has that started in 2000 could be representative. During this period, she said, “25% was about average.”
“You’re always going to have some amount of cash, from investors and retirees, even in a normal period,” said Boesel.
As previously noted on this website, Goldman’s cash sales percentage estimates were part of a report designed to help estimate the extent to which the purchase market has room to grow and it estimates based in part by data from outside sources like the Mortgage Bankers Association suggest the market will grow but will not be back to “normal” levels such as were seen in 2002 (over $1 trillion as opposed to $500 billion last year) until 2016. It suggests this number will be $750 billion by next year.
Boesel said CoreLogic looks to other data sources like the MBA and the agencies for origination numbers, and notes that while it is tough to forecast beyond 2013 its numbers do look in line with consensus. For 2014, Fannie Mae forecasts $740 billion, the MBA forecasts $700 billion and Freddie Mac forecasts $780 billion.
“I don’t know that cash will constrain the purchase market,” said Boesel. “If you hold the cash sale [percentage] where it is, the purchase market is still going to go up next year.”
But one does have to be sure not to assume that purchase lending will increase exactly in line with home sales, and adjustments to forecasts should be made in line with particularly high cash sale assumptions right now.
Forecasts for 2013 are coming in around $620 billion, said Boesel.
“I know they factor in the cash sales,” she said.