This year, more contracts have been written on Washington- and Baltimore-area homes than in any year since 2006. More than 72,000 sellers signed sales contracts with buyers during the first three quarters of 2013. That’s a 6-percent increase over 2012.
Back in 2006, the year that the real estate bubble had just begun to burst, we also saw 72,000 resale contracts signed from January through September. You might, therefore, think 2013 represents a return to the level of market activity we had back then.
That would be true—if a market is measured only by the number of signed sales contracts. Buyers are, in fact, as busy now as they were six years ago.
However, they are writing many contracts that never go to settlement.
Just 58,000 settlements were recorded from January through September this year. Settlement, also known as “closing,” is when the buyer and seller sign a big stack of papers and ownership of the property actually changes hands.
Thousands of sales contracts are falling through every year, and it’s happening at a higher rate than it did in 2006. More than 73,000 settlements were recorded during the first three quarters of 2006—even more than the number of contracts. (That’s possible because settlement occurs weeks or months after a contract is signed.)
Why would we have 15,000 fewer settlements this year than in 2006, if pending contracts were the same?
Here are just two of the reasons: short sales and stricter lending criteria.
Short sales were almost non-existent seven years ago. Now, thousands of homes are listed and sold for less than the owner owes the bank. But because it is a difficult process that hinges on the bank’s willingness to take a loss, many of the contracts written to buy a short sale never go to settlement.
Lending criteria has also become much more stringent than it was seven years ago. Lenders are scrutinizing loan applications and rejecting many of them. Those contracts never make it to settlement, either.
—Chris Sicks has written about the local real estate market for the past 20 years. Contact him by e-mail firstname.lastname@example.org