Tallahassee Area MLS Shows Rise In Contract Cancellations
When we study the homes for sale in Tallahassee and its surrounding communities, we find a trend that is often mentioned by Dr. Lawrence Yun, Chief Economist for the National Association of REALTORS®. Dr. Yun has been reported a rising trend in the number of real estate contracts that fail to close, and the Tallahassee Area MLS supports his findings.
Dr. Yun attributes much of the housing woes to new lending standards that make it more difficult to finance a home, and he uses the statistical trend of contract cancellations as evidence of the difficulty to obtain financing. I am not so sure this is fair or accurate.
Contract Cancellations Rise In The Tallahassee Area MLS
The following real estate graph shows the rising trend of contract cancellations in the Tallahassee Area MLS. The green area shows the number of closed home sales each month, while the purple area measures the number of new contracts each month. The red line (measured on the right axis as a ratio) compares the closed home sales each month with the number of new contracts written during the previous month. Finally, the gold line displays the one-year trend for contracts that successfully make it to closing.
Tallahassee Area MLS Engulfed By Distressed Home Sales
The reason that I do not believe lending standards are the real culprit behind contract cancellations is two-fold. First, most people who have to sell a home in Tallahassee have a Realtor assisting them in the sale. Any Realtor worth his/her salt is rarely going to advise a seller to accept an offer without proof of mortgage qualification, so any difficulty in obtaining financing is not often a problem once a contract has been negotiated.
More importantly, I think we need to look at how distressed properties are affecting the Tallahassee Area MLS (as well as most of the rest of the US housing markets). In October, 44% of the closed home sales were distressed properties, and the bulk of these were short sales. If you have kept up to speed on the lengthy and disjointed process in trying to buy a short sale, then you most likely know that many buyers are choosing to go to contract on more than one property.
In my twenty plus years in real estate, I can tell you it was extremely rare (in the past) to see a homebuyer wanting to write contracts on more than one home if they were buying it for their primary residence. But due to the way that banks are handling short sales, it is often the smartest way to ensure that a buyer can be in a home within the desired time frame. A homebuyer might go to contract on two or more properties, and then just close on the one that gets a response from the seller's bank in a timely fashion.
Of course, this means that the contracts on the other home(s) are cancelled, and I believe this is why we are seeing cancellation rates rise. The short sales in the Tallahassee Area MLS are attracting multiple contracts, yet only 1 contract will eventually close. And I suspect this is not something just local to Tallahassee.
If you are preparing to buy a home in the next few months, make sure you work with a highly qualified real estate professional who knows current trends and the best tactics to use in this ever-changing, chaotic, real estate market. If you happen to be buying in the Tallahassee area and want world class service, just drop me a note and we'll get you started on your way to home ownership.