BAP Blog Pending Homes Sales Up in June, But Cancelled Contracts Soar

Although pending home sales edged up in June, a new report found that cancellations skyrocketed, with four times as many agents reporting that would-be buyers were unable to close. Home sales had been trending up without a tax stimulus, but a variety of issues are weighing on the market including an unusual spike in contract cancellations in the past month as reported by Lawrence Yun, a chief analyst for National Association of Realtors. Reasons behind the spike in cancellations are unclear, but may include tight credit and low appraisals. It was also reported that 16 percent of NAR members reported a sales contract was cancelled in June, up from 4 percent in May. The National Association of realtors also reported that overall the gains in the South and the West helped boost pending home sales by 2.4 percent in June. The uptick comes a year after the Pending Home Sales Index, a housing measurement tool, fell to low point following the expiration of the federal home buyer tax credit intended to stimulate the economy and shore up the housing market. Still, the NAR's June PHSI of 90.9 for sales agreements for previously occupied homes is more than 9 points below a reading of 100, which would be considered healthy by economists. The Realtors group says a growing number of buyers have cancelled contracts ahead of closings after appraisals showed the homes were worth less than they bid. The reason for this may be that the banks may be growing even more cautious of the lending process. Another factor behind contract cancellations could be home buyers pushing back the closing date. "Though a higher than normal cancellation rate can hold back final closing figures, it could well be that some past cancellations are nothing more than delayed buying decisions rather than outright cancellations," Yun said. Since the start of the year, existing home sales appear to be underperforming. At the current level housing activity is below sustainable levels based on population and employment levels. While the market is trying to recover on its own, the main constriction is the credit issue, followed by slow job growth. It was also reported that home sales would be 15 to 20 percent higher if banks simply returned to the sound underwriting standards that were in place before the loose credit standards which led to the housing boom. The National Association of Realtors, which views existing home sales of 5.5 million homes as sustainable, says the U.S. is likely to tally 5 million this year, a slight increase from 2010. Enhanced by Zemanta