Realtors Report Even Higher Cancellations; And It's Not Why You Think

For the past several months, Realtors across the nation have been reporting an ever-increasing number of cancelled existing home salecontracts. The latest Realtors Confidence Indexnow puts the cancellation rateat 20 percent, way up from the historical norm of around four to six percent.

"On-time settlements were reported as declining from 65 percent to 47 percent," according to the Realtors. It's not why you think, or at least not why I thought. Inability to get a mortgage was reported by just 9 percent of respondents to the Realtor survey. Bigger issues were failed inspections, buyers with cold feet and adverse economic conditions. I'm sure appraisals figured in there as well.

It begs the question then, if these are just delays or true cancellations?

Anecdotally, I was doing a report on a residential street in Northwest DC last week, an area that is still holding its own and didn't lose much in the housing crash. I was standing in front of a "For Sale" sign, when the Realtor from the sign came out of the house. She wanted to know what we were saying about the neighborhood, concerned of course that there were any signs of cracking. I assured her there were not, but asked about the house she was selling.

The Realtor told me it was actually under contract, after about 35 days on the market. I asked why there was no "under contract" sign, which used to be so commonplace before the "sold" sign goes up. She said they hadn't had the inspection yet, although the house looked, at least from the outside, to be in very good condition. When I asked if she worried about that, her answer was, "You never know these days." Apparently the jitters are widespread, even in one of the nation's most secure housing markets.

With so much of the current housing market comprised of distressed property sales, and with the Realtors unable to capture so much of that share in their data, uncertainty is certainly understandable if not mandated. I read a report today citing Barclay's analyst Stephen Kim of Barclays Capital, who is upgrading builders and raising price targets on the premise that we will see a housing "rebound" in 2012.

"In the absence of a government homebuyer incentive, prices for non-distressed home sales have stabilized for almost a year. In our opinion, this is the most important trend in the housing industry right now," notes Kim. "We are amazed at how little attention it has been getting from the media and the Street. This stability on the part of non-distressed prices has occurred despite a very high share of distressed activity and continued declines in overall prices."

I'm not sure where he's getting that stabilization. CoreLogic reportedhome prices in September, excluding distressed sales, fell 1.1 percent in September. Their chief economist Mark Fleming cites a supply and demand imbalance and adds, "Distressed sales remain a significant share of homes that do sell and are driving home prices overall."

We obviously have to be very careful reading today's housing market tea leaves. There are so many different indicators and so many different entities reporting these indicators, that it's often hard to find out what's really going on. That's why I always go back to the Realtors on the front lines. They are telling us that this market, distressed or not, is skittish and undependable. A 20 percent cancellation rate for existing sales is shocking and does not suggest a rebound on the horizon. At best, I'm looking for simple stabilization.

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