NEW YORK (MainStreet) — Cash sales of homes are declining, and could return to normal levels in a couple of years. But although that's good news, cash deals will continue to make sense for some homebuyers.
Determining if that's so is, well, complicated, and hinges on market conditions that change constantly.
CoreLogic, the real estate data firm, says cash sales made up 35.5% of home sales in December, down from 38.5% a year earlier and a peak of 46.5% in January 2011.
"Prior to the housing crisis, the cash sales share of total home sales averaged approximately 25%," CoreLogic said. "Should the cash sales share continue to fall at the same rate that it did in December 2014, the share should reach 25% in mid-2017."
This is good news because the high level of cash sales was caused by market troubles. Many ordinary buyers could not get a mortgage, so sales levels dropped and cash deals made up a larger portion of what was left. Speculators rushed into the market, paying cash for foreclosures and other "distressed" sales. Now, as the market recovers, speculators are backing away.
Still, cash purchases will continue to make sense for some ordinary buyers. Downsizing retirees, for example, can buy a less expensive home, pocketing the difference for living expenses and avoiding the burdens of a mortgage. Many retirees without ordinary income cannot get a mortgage anyway.
But what about those with an option — to borrow or pay cash?
Cash buyers are more attractive to sellers because the sale does not hang on a mortgage approval, says Investopedia, the investment and personal finance site. That can help the buyer get a better deal.