RALEIGH – Homebuyers in Raleigh’s metropolitan statistical area are increasingly backing out of real estate contracts to purchase homes, new data from national real estate brokerage firm Redfin shows.
Of the 102 metropolitan regions studied, the region sees the tenth-fewest percentage of contracts fall through with 7% of deals falling out of contract in June 2022. Raleigh’s metropolitan statistical area (MSA) includes Wake, Johnston, and Franklin Counties.
While 7% is the highest percentage rate in Raleigh’s MSA since February of 2021, it’s far below the national average for June 2022, 14.9%.
And this is happening even as buyers may be in a slightly better negotiating position than in previous months, with Raleigh area home sellers dropping prices on one of every four homes for sale in June. And, a separate Redfin report found that Raleigh also has an increasing number of homes coming available on the market after two years of historically low inventory, with 20% more new listings than the same time period in 2021.
Still, though, our local real estate market is under-supplied, said Jim Allen, owner and broker-in-charge of The Jim Allen Group, in an interview with WRAL TechWire this week. Yet there are some signs that more homes may come on the market, said Allen. “We are finding that sellers are now getting off of the fence about selling,” said Allen. “And listing their homes with us to maximize their equity in their property.”
Nationally, nearly 15% of all purchase contracts were cancelled in June, Redfin’s analysis found. But in the Raleigh market, only 7% of deals fell apart.
“North Carolina has a particularly hard contract to get out of,” said Courtney Brown, a real estate agent with Hunter Rowe, and a former lawyer, in an interview with WRAL TechWire. “On the seller side, it is really hard.”
On the homebuyer’s side of the standard contract form from the North Carolina Bar Association and North Carolina REALTORS Association, buyers typically have a contractual right to walk away from the deal during the due diligence period, though many homebuyers have waived this right to compete for homes in a competitive real estate market.
“I tell my buyers that due diligence is somewhat of a miniature contract,” said Brown. “It’s a fee that you pay to take the home off the market, so you can continue forward with the contract.”
And while there may be fewer bidders in multiple offer situations now than in previous months when there was lower inventory, said Roger Bernholz, vice president and general counsel at the Triangle real estate brokerage Coldwell Banker HPW in an interview with WRAL TechWire, the Triangle is still very much a seller’s market.
“Price appreciation is probably slowing, but I don’t see us experiencing value decline, said Bernholz. “There is just too much happening on the business front in the Triangle and surrounding counties.”
North Carolina was ranked first for business twice this week, with one leading factor in both analyses being the economic development activity in the greater Triangle region and across the rest of North Carolina.
Why the jump?
The Redfin data shows that June 2022 saw an increase in the percentage of homes that fell out of contract in the Raleigh area. Still, June’s rate of 7% is lower than the average across the entire data set during the time period since January 2017, which is 9.34%.
But since June of 2020, the average percentage of homes that have fallen out of contract is 6.6%. And for each month between February 2022 and May 2022, the rate of homes falling out of contract has been below 5%.
So what changed in June?
“The only obvious answer to me is the spike in mortgage interest rates,” said Matt Fowler, the executive director of Triangle Multiple Listing Service, TMLS. “When you have people who aren’t locked into a rate before closing, they may have seen their effective mortgage payment increase.”
A different study released by Redfin earlier this year found that an increase in mortgage rates of just 0.4% could impact purchasing power for Raleigh area homebuyers by $13,500. But mortgage rates have increased dramatically since that report came out, with the latest average rate of a 30-year fixed-rate mortgage at 5.51% according to Freddie Mac’s weekly survey.
“I can imagine someone looking at a $2,400 payment, but when they were getting close to closing, it was $3,200,” said Fowler.
Still, said Allen, most buyers back out for personal reasons. “Most fall through during due diligence period for a buyer’s change in moving plans, job loss, or different personal family reasons.”
It’s normal to see fall offs in the 5-7% range, said Allen.
Triangle residents still feeling the squeeze
First-time homebuyers may feel especially stretched right now, and anyone who is seeking to change housing may be feeling squeezed in the current market conditions, said Fowler.
“We are still in a position, and we talk about this all the time, saying the market is tight, or hot, or all of these phrases,” said Fowler. “If you’re a renter or a buyer, you’re probably feeling pretty squeezed right now.”
That could be a factor, as well: there’s more of a housing squeeze in the Triangle than in other markets, so for those lucky enough to win a contract, they’re less likely to back out of the deal.
“In the past two months, due diligence fees appear to have come down,” said Brown. “When I first started in real estate, due diligence was, say, $1,000, and while it’s come down recently, it’s not down that far.”
Fact is, when you get a home under contract, and you’ve put up a large amount of financial capital as a non-refundable due diligence fee, you’re much less likely to walk away, explained Brown.
“People aren’t walking away from $10,000 in due diligence fees,” said Brown.