Creditworthy homebuyers continue to be squeezed out of the housing market by those making all-cash purchases.
Cash purchases accounted for 39% of total sales in Q1 2014, according to Morgan Stanley’s Vishwanath Tirupattur. While this is up from the second half of last year, it is down from the highs of Q1 2013, Q1 2012, and Q1 2011.
In terms of absolute volume, cash transactions have fallen down 15% quarter-over-quarter and are at the lowest level since Q1 2009.
This is because “distressed transactions, which have a far higher share of cash sales than their non-distressed peers do, are down 58% from their peak in Q3 2009 and hit their lowest levels in Q1 2014 since Q4 2007,” writes Tirupattur.
Surprisingly though, it turns out that even as distressed transactions have fallen, the share of cash purchases in distressed transactions is at all-time high. “Investors of distressed properties are not buying as many properties, but they appear to be using cash more often than ever,” writes Tirupattur.
So what exactly is going on?
“In our view, the rise in cash share seems to be less a function of borrowers using cash in lieu of mortgage financing, and more a consequence of tight mortgage lending conditions suppressing overall transaction volumes,” argues Tirupattur.
While it’s getting easier for Americans to get mortgages, mortgage credit availability is still tight historically.
And as mortgage lending continues to remain “anemic,” and as shadow inventory declines leading to fewer distressed sales, national housing activity will continue to soften unless mortgage lending picks up.
Here’s a look at share of cash purchases in distressed and non-distressed transactions:
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