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Cover story: Failed contracts distort statistics on home sales
Home sales in the Washington metro area were up 14 percent in 2011. They were also down by 8 percent.
How could that be? Well, that’s because there are two ways to count home sales. Counting contracts would tell you sales rose last year, but counting settlements would tell you they fell.
There’s a reason the results are so different, and that reason also reveals something interesting about how radically the dynamics of our real estate market have changed.
“Financing is difficult, and the confidence level of the buyers is a big problem. Many buyers ask for everything to be fixed and ask for money from the seller on top of it. If they don’t get it, they want out of the contract, and it never goes to settlement.”
When homes don’t go to settlement, they usually go back on the market. Eventually, another buyer comes along, and that results in another ratified contract, further boosting the total contract count for the year.
“The market really is active; it’s just that much of the activity is being spent on recontracting listings,” said Margaret O'Sullivan, vice president of operations at Metropolitan Regional Information Systems, the company that maintains the database for area Realtors.
“Even if you look back at 2005, contracts have always fallen through. People were denied mortgages or the termite inspection found something,” Ms. O'Sullivan said.
Those problems have become more numerous and diverse than they were a few years ago. Still, lots of people are putting contracts on homes, and buyers do seem eager to buy.
“The good side of it all is that tons of people are trying to buy and sell houses,” she said. “But because of the contracts that are released, it’s taking more time to actually get all those properties to settlement.”
In 2005, about 11,000 contracts were released, or fell through, in the Washington area. That was 10 percent of all the contracts ratified that year.
That figure has grown each year as lending criteria has become more stringent, appraisals were scrutinized like never before and buyers grew more cautious. By 2008, nearly 16,000 contracts were released.
In 2010, more than 22,000 contracts fell through - a full 30 percent of the contracts ratified that year. Last year, the number of released contracts fell to 19,000, or 23 percent of total ratified contracts. It was a smaller problem than in 2010, but still a big one.
(To see this data in charts and learn more about released contracts and home sales, read Charting the Market.)
“This isn’t a problem with investors,” Ms. Worthington said. “Investor buyers don’t usually drop out. It’s many of the regular buyers who lack confidence right now.
By Donald Lambro
Growth spikes are little more than trend-free anomalies
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