Real estate economic experts know that tracking even a limited number of metrics can provide telling details about the state of the market. Two of those important metrics were released last week when CoreLogic updated its percentage of cash sales and distressed sales.
Cash sales accounted for 32.4 percent of total home sales in November 2016, down 4.5 percentage points year over year from November 2015. The cash sales share peaked in January 2011 when cash transactions accounted for 46.6 percent of total home sales nationally.
Prior to the housing crisis, the cash sales share of total home sales averaged approximately 25 percent. If the cash sales share continues to fall at the same rate it did in November 2016, the share should hit 25 percent by mid-2017.
Figure 1 above shows the historical trend in the cash sales share by sale type. Real estate owned (REO) sales had the largest cash sales share in November 2016 at 60.2 percent.
Resales had the next highest cash sales share at 32.3 percent, followed by short sales at 31.9 percent and newly constructed homes at 15.5 percent. While the percentage of REO sales within the all-cash category remained high, REO transactions have declined since peaking in January 2011.
Figure 2 above shows the distressed sales share of total home sales, of which REO sales made up 4.9 percent and short sales made up 2.6 percent in November 2016. The distressed sales share of 7.5 percent in November 2016 was the lowest distressed sales share for any month since September 2007.
At its peak in January 2009, distressed sales totaled 32.4 percent of all sales with REO sales representing 27.9 percent of that share. The pre-crisis share of distressed sales was traditionally about 2 percent. If the current year-over-year decrease in the distressed sales share continues, it will reach that “normal” 2-percent mark by the end of 2017.
All but eight states recorded lower distressed sales shares in November 2016 compared with a year earlier. Maryland had the largest share of distressed sales of any state at 18.4 percent in November 2016, followed by Connecticut (18.2 percent), New Jersey (15.8 percent), Illinois (14.3 percent) and Michigan (14 percent).
North Dakota had the smallest distressed sales share at 1.4 percent. While some states stand out as having high distressed sales shares, only North Dakota and the District of Columbia are close to their pre-crisis levels (each within one percentage point).
Figure 3 above shows the cash sales share by state for November 2016. New York had the largest cash sales share of any state at 47.4 percent, followed by Alabama (47.3 percent), Michigan (44.1 percent), Florida (42.4 percent) and Indiana (41 percent).
Unless you’re a cash flush investor looking to snag distressed or underpriced properties on the cheap, these numbers are a good sign that the market is continuing to normalize. By almost all of the major metrics, the real estate market here in Los Angeles and across the country has fully recovered from the crash.
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