33% Of Existing Home Sales Not Closing. True From Where I Sit.
Good news: home purchase business in San Francisco is up for me this year, even after loan limits in our jumbo market were cut from $729k to $625k effective October 1. Bad news: more offers than ever fall out.
I started noticing it in September. Cold feet all over the place. This afternoon was no exception. One of my clients cancelled his contract to buy a condo for $600,000 even after his appraisal came in today at $634,000.
I didn’t bother telling him how rare it is for a purchase appraisal to come in so high above contract price. Value wasn’t his issue. He went cold because of a new HOA provision that will require owners to live in their condo for two years before they have an option to rent. This type of policy is actually good for long-term value. But it didn’t give him the flexibility he wanted.
This is one of several stories of buyers breaking contracts. I’ve had about two per month since September. All different reasons, most based on something they didn’t like after inspections or reviewing disclosures.
This trend for me, one single mortgage banker, is underscored by a stat I’ve been tracking in the National Association of Realtors’ Existing Home Sales Report. Today’s report for October said that 33% of purchase contracts on existing homes are failing, up sharply from 18% in September and August, and 8% in October 2010.
Thankfully my stats aren’t this high, but it does confirm shaky buyers are everywhere. The NAR says contracts are failing because of declined mortgages, low appraisals, property inspections (like I noted above as the main thing I’m seeing), and employment losses.
We’re fortunate enough not to have the appraisal issues as much here in San Francisco, not that every deal comes in almost 6% above contract price like the one above. But buyer jitters for the reasons NAR stated are certainly justified.
My buyers aren’t exiting the market, they’re just looking for the precisely correct deal for them. They simply won’t settle. Not settling on price has been a theme since 2007, and now we can add not settling on condition, location, and HOA quality (if a condo) to the list.
But they’re staying in the market. I’m still working with all but one of my buyers who have cancelled contracts since September. That one decided to rent.
NAR chief economist Lawrence Yun also said contract cancellations are because of lower loan limits for conventional mortgages, which I’ll file under “that’s just something Realtors say” because, as a lender in a jumbo market, I can verify that statement is untrue.
And as for the rest of the the stats in NAR’s existing home sales report, they’re of dubious credibility according to many.
In February, Core Logic said the NAR was overstating sales by 15-20% in 2010 (report excerpt | chart: NAR vs CoreLogic data), and today New York appraisal veteran Jonathan Miller explains why NAR’s existing home sales report is misleading for realtors and consumers alike. Miller’s piece is a must-read.