A surge in sales contracts signed in October announced by NAR yesterday that inspired hopes of a fall boomlet actually will problem have no impact at all on closed sales.
Pending sales rose 10.4 percent to 93.3 in October from 84.5 in September and is 9.2 percent above October 2010 when it stood at 85.5. Estimates for pending home sales ranged from a drop of 2 percent to an increase of 5.6 percent, according to a median 2.0 increase in a survey by Bloomberg.
However, in October 33 percent of Realtors reported that a plague of problems ranging from low appraisals and inability to get financing killed their most recent sales contracts.
Settlement problems have been increasing since May, but shot up dramatically in September, when it 18 percent of Realtors reported failed contracts. In October, one out of three said they had recently lost a pending sale, according to NAR’s Realtor Confidence Index survey. At the current rate of increase, settlement failures will wipe out the October gain in pending sales.
“Home sales have been plodding along at a sub-par level while interest rates are hovering at record lows and there is a pent-up demand from buyers who normally would have entered the market in recent years. We hope this is indicates more buyers are taking advantage of the excellent affordability conditions,” he said. Lawrence Yun, NAR chief economist, said improved contract activity is a hopeful sign.
Last week Yun said, “Many people who are attempting to buy homes are thwarted in the process.”
In October, only 47 percent of contracts settled on time. Twenty percent were delayed a month or more, 9 percent failed because buyers count not get financing, 4 percent had low appraisals or home valuation problems, and 20 percent encountered other problems, according to the NAR survey.
“Although contract signings are up, not all contracts lead to closings. Many potential home buyers inadvertently hurt their credit scores and chances of getting a mortgage through easily averted actions, such as cancelling an old credit line while taking on a new one,” Yun said. “Such actions could unwittingly prevent buyers from obtaining a mortgage if their credit score is close the margins of qualifying, or they might get a loan but with less favorable terms.”
Amen to that!! I am losing confidence in my ability to write a contract with a closing date that has any meaning. The whole industry is being held hostage to ridiculous underwriting requirements. For instance does the general buying public know that if you have a stash of cash to use as part of a downpayment you can’t? Or to be exact you can only if you can prove and track exactly where all of it came from …. let’s see “this $100 was a birthday gift a year ago from Aunt Louise and here is the cancelled check”. Each one of these add-on requirements from underwriting delays a transaction even more. What’s worse is that they don’t come all at once, they dribble in. There is a very real human cost to this … stress – major inconvenience – actual monetary cost in fines and rental costs not to mention lost deals. The problem is that we’re told there is nothing we can do about it.
Without trying to deny the problem… in a sense “it is what it is.” What “we” can do about it is accept it and work with it… I’ve not encountered “ridiculous” underwriting standards. Are there challenges? Of course. We need to prepare potential buyers for them and/or work more closely with lenders to understand what our clients are going to go through.
The reality is it may not be a “great time to buy.” That’s not the lenders’ fault.
“…and 20 percent encountered other problems.”
That’s 60% of the total (20 out of 20+9+4=33). I wonder what these “other problems” are.
I only have one data point to contribute: my husband and I were in contract to buy an investor-owned short sale, but the seller refused to give her renters notice even though they were month-to-month – and the renters turned out to have terrible credit and on top of that seemed likely to go into bankruptcy soon.
After finding out about the eviction process (slow and expensive!) and the moratorium on all legal actions (including eviction) that accompanies bankruptcy, we panicked and backed out.
Thanks for your comment.
I wondered the same thing when I reviewed the NAR research. Today there are so many glitches that can torpedo a deal, and with short sales, there are an extraordinary number of moving parts, as you know.
As lenders rent out short sales and foreclosures, I wonder how many other deals are being lost to tenant problems like the one you encountered.
Just imagine how many more homes would be sold if the procedural issues could be addressed more effectively!