Cash Driving US Home Sales

A recent report from Zillow shows that three out of every ten Americans are unable to qualify for mortgage as interest rates continue to rise, leaving cash buyers …

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A recent report from Zillow shows that three out of every ten Americans are unable to qualify for mortgage as interest rates continue to rise, leaving cash buyers the run of the market. RealtyTrac reports that cash sales account for more than half of purchases in areas like Detroit and Las Vegas, where distressed property sales still control the market. Although sales and prices are still increasing, analysts note that those numbers may be being driven even more buy cash buyers, and the market will not support that kind of activity for much longer. For more on this continue reading the following article from 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%.

Three out of 10 Americans have a credit score of less than 620, the report said, citing data from credit score provider FICO.

Meanwhile, the best mortgage rates were reserved for those with a credit score of 740 or higher — about 40% of the population — compared to 720 three years earlier.

The average interest rate on conventional 30-year fixed rates for a borrower with credit scores over 740 was 4.42%. Borrowers with mid-range credit scores between 620 and 739 received APRs, on average, between 5.09% and 4.47%, with the APR rising as the credit score drops.

"Despite all-time high levels of affordability in the housing market, tightened lending standards mean that nearly one-third of Americans are unlikely to be able to achieve the American Dream of homeownership because they can’t qualify for a mortgage due to a low credit score," said Erin Lantz, director of mortgages at Zillow in a release.

This article was republished with permission from TheStreet.

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