Posted originally on the conservative tree house on July 12, 2022 | Sundance
A slowdown in the housing market is being identified as the primary cause of a significant increase in cancelled homebuyer contracts in the month of June. Bloomberg Report Here and Redfin Report Here. It would appear the inflated housing bubble has popped.
According to the data 60,000 home sales were cancelled while under contract in June, that represents 14.9% of all contracts cancelled by the buyer before the transaction closed. If you take out the forced cancellations due to the pandemic, a 15% cancellation rate equals the highest monthly cancellation rate ever recorded.
The economy is contracting, economic activity and consumer purchases have stopped, and the contraction is now fast and sudden.
(Redfin) – Nationwide, roughly 60,000 home-purchase agreements fell through in June, equal to 14.9% of homes that went under contract that month. That’s the highest percentage on record with the exception of March and April 2020, when the housing market all but ground to a halt due to the onset of the coronavirus pandemic. It compares with 12.7% a month earlier and 11.2% a year earlier.
This is according to a Redfin analysis of MLS data going back through 2017. Please note that homes that fell out of contract during a given month didn’t necessarily go under contract the same month. For example, a home that fell out of contract in June could have gone under contract in May.
“The slowdown in housing-market competition is giving homebuyers room to negotiate, which is one reason more of them are backing out of deals,” said Redfin Deputy Chief Economist Taylor Marr. “Buyers are increasingly keeping rather than waiving inspection and appraisal contingencies. That gives them the flexibility to call the deal off if issues arise during the homebuying process.”
Marr continued: “Rising mortgage rates are also forcing some buyers to cancel home purchases. If rates were at 5% when you made an offer, but reached 5.8% by the time the deal was set to close, you may no longer be able to afford that home or you may no longer qualify for a loan.” (read more)
Now, keep in mind that contract cancellations can also be attributed to a hot housing market, where purchasing hysteria and bidding wars end up being factors in the contracts. Some anxious buyers make out-of-town offers without even seeing the house, then use contract exits -contingencies- to cancel the purchase if the home is ultimately not up to their standard.
In my opinion the spike in cancellations is a blend of the two aspects which indicate the apex of home purchasing is behind us. The bubble popped.
Home values are now declining as more available inventory starts to fill up the real estate market. Again, everything is local and regional depending on a myriad of issues; however, if we are looking at it from a macro level, the booming housing market is now over.
City and county tax rates will now benefit from the overinflated real estate sales data. Real estate tax bills (a backward-looking metric) will go up as the curve on home valuation actually starts to drop and drop quickly.
If you did not purchase a home this year, you have not lost money. If you did purchase a home this year, the dropping market will erase tangible wealth.
Redfin also has the top metro-markets for cancellations:
CBS says the best way to survive the Biden economy is not to buy stuff, and young adults should stay living with mom and dad. WATCH: