Record Number Of Homebuyers Walk Away From Contracts
Aug 17, 2022 23:19:02 GMT -5
Post by J.J.Gibbs on Aug 17, 2022 23:19:02 GMT -5
Record Number Of Homebuyers Walk Away From Contracts As Builders Reel Amid Glut Of Unsold Houses
BY TYLER DURDEN
TUESDAY, AUG 16, 2022 - 06:55 PM
Between cratering homebuilder and homerbuyer confidence...
... record low home affordability...
... a record number of new listing with price cuts (amid the collapse in demand).
... plunging housing starts...
... and so on, as the recent surge in mortgage rates has effectively pushed the housing market into a recession, which is now so widespread that 63,000 home-purchase agreements were called off in July, equal to 16% of homes that went under contract that month. According to Redfin, that's the highest percentage on record, and only the brief spike during the covid crash - which the promptly reversed - was worse. It’s up from a revised rate of 15% one month earlier and 12.5% one year earlier.
The housing market is slowing as higher mortgage rates sideline many prospective homebuyers. With competition declining, the house hunters who are still in the market are enjoying newfound bargaining power, a striking contrast from just a few months ago, when buyers often had to pull out every stop in order to win. Today’s buyers are more likely to utilize contract contingencies that allow them to back out without financial penalty if something goes wrong. And with an increasing number of homes to choose from, they’re also more likely to call a deal off if a seller refuses to bring the price down or make requested repairs—a situation that has become increasingly common given that sellers are still adjusting to the cooling market.
“Homes are sitting on the market longer now, so buyers realize they have more options and more room to negotiate. They’re asking for repairs, concessions and contingencies, and if sellers say no, they’re backing out and moving on because they’re confident they can find something better,” said Heather Kruayai, a Redfin real estate agent in Jacksonville, FL. “Buyers are also skittish because they’re afraid a potential recession could cause home prices to drop. They don’t want to end up in a situation where they purchase a home and it’s worth $200,000 less in two years, so some are opting to wait in hopes of buying when prices are lower.”
Alexis Malin, another Redfin agent in Jacksonville, warns that there’s no guarantee buyers will be able to find better deals in the future. Annual home-price growth has started to slow—to 8% today from 17% a year ago—but prices are still on the rise and Redfin economists don’t expect them to crash.
“Some buyers who are backing out of deals have this mindset that the market is crashing and they’ll be able to get a home for $100,000 less in six months. That’s not necessarily the case,” she said. “Homes in many parts of Florida are still selling for a pretty penny, so I warn my buyers that the grass might not actually be greener on the other side.”
Some buyers may also be backing out due to 5%-plus mortgage rates. Those who started their search months ago, when rates were closer to 3%, may be realizing the type of home they wanted before is now out of budget since monthly mortgage payments have soared nearly 40% year over year.
“Home-purchase cancellations may begin to taper off as sellers get used to a slower-paced market,” said Redfin Deputy Chief Economist Taylor Marr. “Sellers have already begun to lower their prices after putting their homes on the market. They’ll likely start pricing their properties lower from the get-go and become increasingly open to negotiations.”
And just to confirm how bad the US housing market is, even the morbidly slow rating agency Fitch Ratings said the likelihood of a severe downturn in US housing has increased (although since rating agencies are never allowed to rock the boat, it said that its rating case scenario provides for a more moderate pullback that includes a mid-single-digit decline in housing activity in 2023, and further pressure in 2024.) Fitch also notes that although it recently affirmed the ratings and Stable Outlooks for our US homebuilder portfolio, "ratings could face pressure under a more pronounced downturn scenario that would likely include housing activity falling roughly 30%, or more, over a multi-year period and 10% to 15% declines in home prices."
* * *
The biggest losers from the latest housing crash aren't sellers however, but rather homebuilders, who are suddenly finding themselves with a glut of unsold houses.
As Bloomberg notes, with this year’s surge in mortgage rates tossing buyers to the sidelines, the waitlists for new houses are gone and new-home sellers - such as Kevin Brown, who works just south of Houston, are on the front lines of a massive shift. While Brown used to have back-to-back appointments, buyers now just trickle in to his Saratoga Homes sales office. Meanwhile, he’s got 55 houses under construction and five that are complete, all without deals.
“There’s a bit of pressure on us,” Brown said. “Builders have got to hit goals and make their profit, and they don’t like inventory just sitting on the ground.”
An abrupt halt to the pandemic housing boom has left builders that started construction months ago scrambling to adapt. The US supply of new homes relative to sales in June was the highest since the midst of the last crash in 2010. And by early July, buyer traffic to homebuilder websites and sales offices had plunged to the lowest level for the month since 2012, according to a survey of builder sentiment from the National Association of Home Builders.
Graphs at link
BY TYLER DURDEN
TUESDAY, AUG 16, 2022 - 06:55 PM
Between cratering homebuilder and homerbuyer confidence...
... record low home affordability...
... a record number of new listing with price cuts (amid the collapse in demand).
... plunging housing starts...
... and so on, as the recent surge in mortgage rates has effectively pushed the housing market into a recession, which is now so widespread that 63,000 home-purchase agreements were called off in July, equal to 16% of homes that went under contract that month. According to Redfin, that's the highest percentage on record, and only the brief spike during the covid crash - which the promptly reversed - was worse. It’s up from a revised rate of 15% one month earlier and 12.5% one year earlier.
The housing market is slowing as higher mortgage rates sideline many prospective homebuyers. With competition declining, the house hunters who are still in the market are enjoying newfound bargaining power, a striking contrast from just a few months ago, when buyers often had to pull out every stop in order to win. Today’s buyers are more likely to utilize contract contingencies that allow them to back out without financial penalty if something goes wrong. And with an increasing number of homes to choose from, they’re also more likely to call a deal off if a seller refuses to bring the price down or make requested repairs—a situation that has become increasingly common given that sellers are still adjusting to the cooling market.
“Homes are sitting on the market longer now, so buyers realize they have more options and more room to negotiate. They’re asking for repairs, concessions and contingencies, and if sellers say no, they’re backing out and moving on because they’re confident they can find something better,” said Heather Kruayai, a Redfin real estate agent in Jacksonville, FL. “Buyers are also skittish because they’re afraid a potential recession could cause home prices to drop. They don’t want to end up in a situation where they purchase a home and it’s worth $200,000 less in two years, so some are opting to wait in hopes of buying when prices are lower.”
Alexis Malin, another Redfin agent in Jacksonville, warns that there’s no guarantee buyers will be able to find better deals in the future. Annual home-price growth has started to slow—to 8% today from 17% a year ago—but prices are still on the rise and Redfin economists don’t expect them to crash.
“Some buyers who are backing out of deals have this mindset that the market is crashing and they’ll be able to get a home for $100,000 less in six months. That’s not necessarily the case,” she said. “Homes in many parts of Florida are still selling for a pretty penny, so I warn my buyers that the grass might not actually be greener on the other side.”
Some buyers may also be backing out due to 5%-plus mortgage rates. Those who started their search months ago, when rates were closer to 3%, may be realizing the type of home they wanted before is now out of budget since monthly mortgage payments have soared nearly 40% year over year.
“Home-purchase cancellations may begin to taper off as sellers get used to a slower-paced market,” said Redfin Deputy Chief Economist Taylor Marr. “Sellers have already begun to lower their prices after putting their homes on the market. They’ll likely start pricing their properties lower from the get-go and become increasingly open to negotiations.”
And just to confirm how bad the US housing market is, even the morbidly slow rating agency Fitch Ratings said the likelihood of a severe downturn in US housing has increased (although since rating agencies are never allowed to rock the boat, it said that its rating case scenario provides for a more moderate pullback that includes a mid-single-digit decline in housing activity in 2023, and further pressure in 2024.) Fitch also notes that although it recently affirmed the ratings and Stable Outlooks for our US homebuilder portfolio, "ratings could face pressure under a more pronounced downturn scenario that would likely include housing activity falling roughly 30%, or more, over a multi-year period and 10% to 15% declines in home prices."
* * *
The biggest losers from the latest housing crash aren't sellers however, but rather homebuilders, who are suddenly finding themselves with a glut of unsold houses.
As Bloomberg notes, with this year’s surge in mortgage rates tossing buyers to the sidelines, the waitlists for new houses are gone and new-home sellers - such as Kevin Brown, who works just south of Houston, are on the front lines of a massive shift. While Brown used to have back-to-back appointments, buyers now just trickle in to his Saratoga Homes sales office. Meanwhile, he’s got 55 houses under construction and five that are complete, all without deals.
“There’s a bit of pressure on us,” Brown said. “Builders have got to hit goals and make their profit, and they don’t like inventory just sitting on the ground.”
An abrupt halt to the pandemic housing boom has left builders that started construction months ago scrambling to adapt. The US supply of new homes relative to sales in June was the highest since the midst of the last crash in 2010. And by early July, buyer traffic to homebuilder websites and sales offices had plunged to the lowest level for the month since 2012, according to a survey of builder sentiment from the National Association of Home Builders.
Graphs at link
