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Low-priced home sales remain heavily cash transactions.

Jacksonville, Florida-based Black Knight Financial Services Inc.'s (BKFS') Data & Analytics Division reported that based on data as of the end of April, cash sales made up 62 percent of purchases in the lowest 20 percent price bracket. However, BKFS found that cash sales only made up 30 percent of purchases for home sales in the top 20 percent value bracket.

Overall, BKFS found that in the first quarter of 2016, cash sales declined to 35 percent of home sales, compared with 37 percent in the first quarter of 2015. Cash sales peaked at 45 percent in the first quarter of 2011, according to BKFS.

The data all came from BKFS' latest Mortgage Monitor Report released on June 6. Black Knight examined the cash share of residential real estate transactions in core-based statistical areas (CBSAs). It divided each CBSA into five equal price tiers.

The results showed that overall cash sales are slowing, the company said. However, they still account for the bulk of transactions for homes in the lowest 20 percent of property values.

Commenting on the findings, Ben Graboske, senior vice president for Black Knight Data & Analytics, said, "For those in the lowest 20 percent of property values, over 60 percent of sales were cash transactions. While down significantly from its peak of 75 percent of all transactions at the bottom of the housing market, this is still quite high for cash sales, historically."

Graboske cited two primary reasons for the predominance of cash sales in the low end of the market. "First, negative equity is still higher than average among this segment of the market, resulting in increased distressed discounts for buyers. Second, lower-priced homes simply require less capital to purchase outright, making cash sales possible for most people."

The latest Mortgage Monitor Report also presented findings on the correlation between mortgage characteristics and the likelihood a property would be listed for sale. The results shed some light on the current shortage of inventory for sale.

First, the findings clearly support the fact that there is an inventory shortage. Graboske said, "We found that the share of homes with mortgages listed for sale is down 22 percent since 2012 and down 5 percent from the same time last year. "

He added, "One driver is that while delinquent borrowers are still more than twice as likely to list their homes for sale, there are far fewer of these borrowers, as well as a much lower share of such homes listed for sale, than in 2012. On the other hand, listings from borrowers who are current on their mortgages are up 10 percent over the same time period."

The report also noted that borrowers with adjustable-rate mortgages (ARMs) are 72 percent more likely to list their homes for sale than borrowers with fixed-rate mortgages (FRMs).

Graboske explained that borrowers with low fixed-rate loans are less inclined to list their homes for sale because they don't want to give up the low rates they already have, especially if rates are expected to rise. He noted that as market rates rise more in the future, this would grow the pool of borrowers with existing rates below prevailing rates for new loans. Graboske noted, "[T]his is something to keep an eye on." He said it could "put an even greater strain on the already tight housing inventory."

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Title Annotation:NEWS ROOM
Comment:Low-priced home sales remain heavily cash transactions.(NEWS ROOM)
Publication:Mortgage Banking
Date:Jul 1, 2016
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