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Cash Still Rules Housing Market as Banks Freeze Out 3 in 10 Americans

Stocks in this article: SPY XHB IYR DIA XLF

NEW YORK ( TheStreet) -- Cash buyers continue to drive the housing recovery, with higher mortgage rates leaving borrowers out in the cold.

According to the latest report from RealtyTrac, cash purchases accounted for 45% of the total residential property sales in August, up from 39% in July and 30% in August 2012.

In cities with a high proportion of distressed properties such as Miami, Detroit and Las Vegas, cash sales accounted for more than 65% of total sales.

U.S. residential sales sold at an estimated annualized rate of 5.6 million, up 2% from 5.5 million in July and up 12% from a year earlier.

The median price of properties sold rose 3% to $175,000 and up 6% from a year ago.

Still, while sales and prices are rising, housing recovery skeptics note that a large share is still being driven by cash buyers and institutional investors, while first-time homebuyers who are more dependent on credit are being left out.

Institutional investors -- non-lending entities that bought at least 10 properties in the last 12 months -- accounted for 10% of sales in August compared to 9% a year earlier.

Investor activity remains high as banks continue to work through the foreclosure process. The share of short sales rose to 15% in August, from 14% in July and 8% a year earlier. The share of foreclosure sales accounted for 10% of all sales, up from 9% a year earlier.

Foreign buyers are also big drivers of demand in cities such as Miami and New York, which could also explain the significant share of cash purchases.

Meanwhile, a separate note from Zillow Thursday morning points out that mortgage credit availability still remains tight.

Three out of 10 Americans are unlikely to qualify for a mortgage, according to Zillow Mortgage Marketplace analysis.

Zillow researchers analyzed 13 million loan quotes and 225,000 loan purchase requests in September 2013 and compared it to a similar study in September 2010.

Borrowers with a credit score of less than 620 who requested purchase loan quotes were unlikely to receive a loan quote in September, even if they offered a relatively high downpayment of 15% to 20%.

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