Goldman Estimates Cash Sales Are 50% of Home Purchases

Mortgage & Real Estate

Estimates by Goldman Sachs Group researchers suggest more than half of all home purchases are done on a cash basis, or at least are financed to a far lesser degree than before the recent downturn, but they say that trend will slowly reverse itself in coming years.

Because we have to combine several different data sources and make certain assumptions in calculating the cash transaction series, the level of our estimates may be inaccurate, researchers Charles Himmelberg, Marty Young and Hui Shan noted in an Aug. 14 report. But the change in the series over time should provide useful information about the underlying market trend.

The report estimates on a four-quarter moving average basis the percent of cash transactions by count and dollar amount as of this year is somewhere between 50% to 60% of the market. It finds it has been trending upward since 2008 from a level that was a little over 30% based on dollar amount or lower than 20% based on count the previous three years.

The estimates are part of an analysis Goldman credit strategy researchers did of data from the Mortgage Bankers Association, the Census Bureau, the National Association of Realtors and Lender Processing Services with the aim of determining how much upside there is to purchase lending.

The Goldman researchers said they expect a slow return of the share of home sales financed by cash back to more historically normal levels.

By 2016, we project purchase originations of $1.1 trillion, roughly equal to the level seen in 2002, they said. According to Goldman, the dollar volume of purchase originations in 2012 was $500 billion and it expects this figure to rise to $750 billion in 2014.

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