Cancellations Plague Pending Home Sales
At first glance it seems like a huge and hopeful headline: Pending home sales, based on contracts signed, rose 10.4 percent in October from September.
It certainly gives the impression that buyers are hopping off the fence and into the market.
Well, let's not get ahead of ourselves.
First of all, October pending salesare historically always up month-to-month.
"In fact, when backing out Armageddon 2008 as a one-off, the average post-crash October is up exactly the same as 2011," notes mortgage analyst Mark Hanson. "Bottom line, with record low prices, record low rates, record high pending cancellations, the 8.3 percent [not seasonally adjusted] month-over-month change is far worse than average."
The other problem is that a good chunk of those contracts signed will not reach the closing table. Thirty-three percent of Realtors reported at least one cancellation in October, which is up from 8 percent a year ago.
“Although contract signings are up, not all contracts lead to closings," admits National Association of Realtors chief economist Lawrence Yun. The Realtors cite credit issues, poor appraisals, and a lengthy and complicated short sale process for the high cancellation rate. Weak consumer confidence is also playing a big role.
"We've seen a ton of that this year, so currently I'm strongly warning my clients (sellers) in advance to say 'Yes' to almost everything," says David Fogg, a real estate agent. "I'm telling them to be ready, to be easy going and flexible, willing to fix stuff and patient. For the slightest reasons buyers cancel now, so we are working with our clients to reduce those reasons from the sellers side."
Today's buyers are not-only skittish and skeptical, they are under no particular pressure to move the deal ahead. The 10 percent jump certainly sounds good, and maybe it is finally a real sign of hope, but the proof will come in the December closings, which we won't see until mid-January.