Cash-Only Purchases Increasing Among Existing Homeowners

A survey of real estate agents conducted by Campbell/Inside Mortgage Finance indicates that current homeowners are increasingly shopping for their next home with cash.  During the period between October 2011 and January 2012 the number of existing homeowners using all cash to purchase a principal residence surged from 30.8 percent to 34.1 percent.  The use of cash for a home purchase by investors and by first-time homebuyers was virtually unchanged during the same period.

The Campbell HousingPulse Tracking Survey said there were several drivers of this cash purchase trend:   "mortgage approval hassles," including slow underwriting and tardy appraisals; discounts for cash, and the low returns from bank deposits.  These factors make cash purchases advantageous, the report said, despite the record low mortgage interest rates.   Further, current trends suggest that by the end of this year nearly half of current homeowners will be using only cash to purchase homes. 

HousingPulse survey results for January transactions suggested that all-cash buyers can get discounts of approximately 10% because they do not require mortgage contingencies in their offers.  Cash is especially useful for getting on distressed properties such as foreclosures or short sales.

"Both mortgage rates and certificate of deposit rates have been very low for some time now," said Thomas Popik, research director for Campbell Surveys. "But when the Federal Reserve explicitly said that bank rates will remain low for several more years, I think a lot of affluent homebuyers just threw in the towel and decided to use all cash."

The HousingPulse Distressed Property Index (DPI) shows the sale of distressed properties at a level of 46.8 percent using a three-month moving average.  This is much higher than the level of distressed sales reported by other sources such as Radar Logic (23 percent in January) and RealtyTrac (consistently in the 30-34 percent range).  This is the 25th month in a row that the DPI has been above 40%.

The Campbell/Inside Mortgage Finance HousingPulse Tracking Survey involves approximately 2,500 real estate agents nationwide each month and gathers intelligence on home sales and mortgage usage patterns.