Cash was king for September homebuyersby Tim Manni
When you read the results of the Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions, it’s easier to understand why September’s Pending Home Sales Index recorded its first decline since June.
For the first time in the Campbell/IMF survey’s history, cash became the number one source of financing for homebuyers. Recently, the FHA has been the predominant source of funding for buyers:
According to the latest Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions, cash was reported as the financing method for 30.5 percent of the home-purchase transactions tracked last month. That was not only up from the already high 29.5 per-cent level recorded in August, but way up from the 24.0 percent seen a year earlier.
Significantly, September’s cash share of home-purchase transactions was the highest ever recorded by the Campbell/Inside Mortgage Finance Monthly Survey. It also marked the first time in the monthly survey’s history that the percentage of cash transactions exceeded the percentage of FHA-financed purchases. FHA’s share of the home purchase market came in at 28.6 percent during September, down from 34.4 percent as recently as July and a high of 37.4 percent in October of 2009.
According to the survey, Fannie and Freddie’s share of the purchase market in September was consistent with their performance throughout the year, coming in at 13.6 percent of the market.
Why was cash king in September?
Cash was king in September for two reasons: 1) Distressed real estate; and 2) fewer first-time homebuyers:
The sharp increase in cash home-purchase transactions this year has a lot to do with the percentage of distressed properties found in the housing market. The latest survey reveals that distressed properties – REO and short sales – accounted for 47.5 percent of purchase transactions tracked last month. That was up from 45.7 percent in August and was the highest distressed property share seen since March.
Since financing distressed properties can be a challenge, homebuyers — first-timers or not — have turned to cash as a viable option.
Although first-time homebuyers were big purchasers of distressed properties earlier in the year, the expiration of the federal homebuyer tax credit in April put the brakes on their activity going into the summer and fall. The new survey numbers show first-time homebuyers with only a 34.4 percent share of purchase transactions in September – down from 42.4 percent as recently as June and the lowest level ever recorded by the Campbell/Inside Mortgage Finance Monthly Survey.
Besides the absence of the homebuyer tax credit, strict underwriting standards continue to limit the amount of homebuyers in general who can qualify for new financing.
This is just one example of our current real estate landscape, and I don’t see it changing anytime soon.