Home/Mortgages/Contract Failures Remain Elevated for the Second Consecutive Month

January 5, 2012 (Chris Moore)

For the second consecutive month, nearly one out of three Realtors® reported losing a sale due to a contract failure, almost four times higher than the amount a year ago according to the National Association of Realtors® (NAR).

NAR first reported the spike in cancelled contracts in October when 33 percent of its members reported losing a sale caused by a contract failure, a huge jump from 18 percent in September. Contract failures first spiked in June, climbing from four percent in May to 16 percent in June and remained around that level until October. In November of last year, nine percent of NAR members reported losing a sale due to a contract failure.

Most contract failures are caused by declined mortgage applications or low appraisals but can also be caused by home inspection problems and employment losses.

Lawrence Yun, chief economist of NAR, stated in November, “A higher rate of contract failures has held back a sales recovery. Contract failures reported by NAR members jumped to 33 percent in October from 18 percent in September, and were only 8 percent a year ago, so we should be seeing stronger sales.”

Despite a second consecutive month of elevated contract failures, NAR reports that total existing home sales, which include single-family homes, townhomes, condos, and co-ops, increased 4.0 percent to a seasonally adjusted rate of 4.42 million in November, up from a revised 4.24 million in October. Sales were 12.2 percent higher than the seasonally adjusted 3.94 million units in November 2010.

Home prices also showed improvement as the national median existing home price increased from $162,500 in October to $164,200 in November. The median home price in November was still 3.5 percent lower than a year ago.

Distressed property sales accounted for 29 percent of all existing home sales in November, up from 28 percent in October but down from 33 percent in November 2010. Foreclosure sales made up 19 percent of all existing home sales while short sales accounted for 10 percent of all existing sales.

Cash sales accounted for 28 percent of all sales in November, down from 29 percent in October, while investors jumped in and purchased 19 percent of the homes sold in November, up from 18 percent in October.

The number of homes available for sale in November continued to dwindle as housing inventories dropped 5.8 percent to 2.58 million homes which represents a 7.0 month supply, down from a 7.7 month supply in October.

Regionally, existing home sales in the Northeast increased 5.1 percent from October to November to an annual rate of 560,000 sales and were 7.7 percent higher than in November of last year, while existing home sales in the Midwest were 4.3 percent higher than the previous month, increasing to a rate of 960,000 annual sales, and were 15.7 percent higher than last year’s sales pace.

In the South, existing home sales rose 2.4 percent in November at an annual pace of 1.74 million sales and were 12.3 percent above November 2010 levels, and in the West, existing home sales for the month increased 3.6 percent to an annual rate of 1.16 million sales and were 11.5 percent above last year’s sales pace.

The median price in the Northeast was $240,200, which was 0.1 percent lower than a year ago, while the median price in the Midwest was $133,400, down 4.0 percent from November 2010.

The median price in the South was $143,300, a decline of 2.1 percent from a year ago and in the West the median price was $195,300, down 8.4 percent from November of 2010.

Tags: existing home sales, investors, distressed property sales, declining prices, low appraisals, cancelled contracts, median home price, contract failures, purchase cancellations