Home sales contracts are being canceled at the fastest pace in two years. What does that mean for real estate investors?
Home Sales Contract Cancellations
We are at a very interesting time in the economy and real estate market. On one hand many individuals are more flush with cash and wealth than ever before. They are investing and spending big on homes and apartments.
On the other hand, we have the middle class who are being financially crushed by inflation, rising taxes, and other factors.
The latter is certainly showing up in the latest data from Redfin. Which shows that the number of home sales contracts being canceled has hit a fresh two year high, which was only outpaced in the depths of pandemic lockdowns.
The figures show an average of 16% of all pending home sales in July. Up a full 1% from June 2022. That reaches almost 30% of contracts failing in Las Vegas, and parts of Florida. Rising interest rates are being blamed as one of the biggest causes of this.
Meanwhile available inventory of homes to buy is up 30% from last year.
So, what does it all mean for real estate investing?
Pick The Right Buyers To Contract With
If you are selling property in any real estate asset class it is more important than ever to pick the buyers you enter into contract with carefully.
The last thing you want is to go through the weeks or months long process and then have to start all over from scratch again.
In fact, prioritizing the ability of your buyers to close, and close on time may be more vital than the gross price that they are offering.
- Choosing cash buyers over financed buyer
- Choosing contracts with the fewest contingency clauses
- Preferring shorter closing timeframes
- More carefully assessing how motivated and financially strong your buyers are in advance
Seize On More Negotiability With Motivated Sellers
Sellers are more motivated than ever. They are facing more pressure and competition. The urgency is at the highest it has been in years.
Firstly, that means there is more ability to negotiate lower prices, and build in more value and instant equity when making new acquisitions.
Secondly, this situation also enables buyers to be more aggressive in the contract terms they offer. Including various contingencies, lower deposits, and even seller financing.
For many this is the best time to buy that they have ever seen. Especially when you factor in today’s historically low interest rates.
Areas Of Opportunity
Aside from residential homes and builder closeouts, this can also be a great time for acquiring multifamily properties. Those who cannot sell or buy another home will be forced to rent, and probably for at least another decade.
Other areas of opportunity that coincide with all of this are sectors like self-storage.