Black Knight: Cash Sales Decline as Distressed Properties Exit Pipeline

Black Knight Financial Services, Jacksonville, Fla., said cash sales of homes have declined over the past several years as distressed properties worked their way out of the pipeline.

The company’s Mortgage Monitor report said cash sales fell to 35 percent of all transactions in the first quarter, down from 37 percent a year ago and well off the peak of 45 percent in first quarter 2011. However, the report noted cash sales remained prevalent on the low end of the market; in the bottom 20 percent of home prices, cash sales represented 62 percent of all sales in the first quarter.

Black Knight Data & Analytics Senior Vice President Ben Graboske noted a “significant disparity” between high- and low-end markets nationwide.

“As the inventory of distressed properties has dried up nationwide, the overall share of cash sales has been on the decline as well,” Graboske said. “What’s striking though, is the disparity between the high and low ends of the market. At the national level, cash sales made up approximately 30 percent of transactions on properties in the top 20 percent by value of their respective markets. For those in the lowest 20 percent of property values, over 60 percent of sales were cash transactions.”

Graboske said the prevalence of cash sales at the low end of the market can likely be chalked up to two factors. “First, negative equity is still higher than average among this segment of the market, resulting in increased distressed discounts for buyers,” he said. “Second, lower-priced homes simply require less capital to purchase outright, making cash sales possible for more people.”

Black Knight reported the share of homes with mortgages listed for sale fell by 22 percent since 2012 and down 5 percent from a year ago.

“We’re now in the heart of the spring home buying season and, as has been true for several years, there are still reports of tight inventory,” Graboske said. “One driver is that while delinquent borrowers are still more than twice as likely to list their homes for sale, there are far fewer of these borrowers, as well as a much lower share of such homes listed for sale, than in 2012. On the other hand, listings from borrowers who are current on their mortgages are up 10 percent over the same time period.”

Additionally, Graboske noted people with adjustable-rate mortgages are more likely to list their homes than those with fixed rates, which is hardly surprising given that buyers often choose ARMs when they plan to stay in their homes for less time. “Interestingly, borrowers with low fixed interest rates–4.25 percent or below–are less likely to put their homes on the market than those with higher rates,” he said. “This is something to keep an eye on if and when interest rates begin to rise. Should the trend hold true, rising interest rates could put an even greater strain on an already tight housing inventory.”

Black Knight also reported home equity lines of credit have now seen annual delinquency rate increases in two of the past six months–the first such annual rises observed since June 2012–driven almost entirely by an 87 percent spike in delinquencies among 2005 vintage HELOCs over the past 12 months, which ended their draw periods and began amortizing in 2015.

“The 2006 vintage–which began amortizing this year–accounts for approximately 17 percent of active HELOCs and 2007 another 18 percent, suggesting the trend will likely continue over the next two years as large volumes of draw expirations take place,” Graboske said.