Buyer Cancellations Hit All-Time High

Dave:
Successfully investing in real estate in today’s day and age requires staying on top the most recent trends in the industry because deals are coming, opportunities are there, but it takes a savvy investor to take advantage of it. Today I’m sharing three new trends that you need to be aware of. Hey everyone. Welcome to On the Market. I’m Dave Meyer, head of Real Estate investing at BiggerPockets, and today we’re going to be covering three big emerging trends that personally I’m following. So I’ll fill you in on what is actually happening and I’ll also share with all of you what it means for investors and those of us who work in the industry. In today’s episode, we’re going to first discuss how prices are rising, kind of they’re also kind of falling and we’ll get into some of the nuances with home prices. Secondly, we’ll talk about new construction and how weaknesses in that entire segment is spreading and what it means for the average investor.
And third, we’ll talk about a big shift that’s going on with contracts, specifically cancellations for pending sales and how you can directly benefit from some of the changes that are going on here. Let’s get into it. First and foremost, we’re talking about prices and we are in this weird stage in the housing market where it is not so easy to say are prices going up or are they declining? When you look at things nationally, of course they’re going to be different from what they are regionally and even when you look from one data provider to another, some of them might say prices are going up and some of them are going down, but just in the last week, a lot of major media outlets were covering a headline that national median home prices for existing home sales in June rose to their highest level on record, which is $435,300.
That’s the highest on record going back to 1998. Not super unexpected because prices generally go up, but it represents a 2% increase in prices from a year earlier, which is a lot slower than it has been, and that’s something we’re going to talk about but is still relatively close to the pace of inflation and that is really meaningful. I know real estate is local, but even on a national level, the fact that home prices are still going up year over year, three and a half years into this interest rate tightening cycle into a year or so of increasing inventory, the fact that prices are still going up during that time I think is extremely notable and shows the resilience of the US housing market. So it does beg the question, how does this even happen, right? Because so many people have said there’s going to be declines or a crash because of interest rates or something else that’s going on in the economy.
But hopefully if you are a frequent listener of this show, you can already answer this for yourself. The answer comes down to inventory. Even though the number of new listings on the market, even though active inventory has been climbing for the last year or so, it’s just still too low. There is still more demand on a national level than there is inventory. We are still below pre pandemic inventory levels, and this is a fun trivia question for huge real estate data nerds out there, but most people think that demand has dropped off in the last year. That is actually not true. When you look at mortgage purchase applications, they’re actually up from a year before, and so even though inventory has been climbing, some of that is offset by increasing demand and the scales just haven’t balanced. There was so much more demand than supply.
Even though things are moving back towards normal, we still have a ways to go not that long because clearly at 2%, but there’s still a little bit of a ways to go before we reached a balanced market. Now, of course, everything that I have said so far is on a national level and that is up, but as I said at the beginning, home prices are up kind of because more and more markets are now starting to see declines. We’re just basically seeing the market split more and more into some that are performing and some that are declining. Just as an example, there’s some data that examines of the nation’s 300 largest housing markets. So these are big cities across the country. Of those 300, how many of them are seeing price corrections? And this trend is very, very telling about what might happen for prices for the rest of the year.
In January, at the beginning of the year, there was 31 of those 300 markets in correction, so about 10% of them. Then when you went to February, increased from 31 to 42. By March it was already up to 60. By April it jumped again to 80 of those markets. In May it was 96, and as of June, that is the last month we have data for, I’m recording this towards the end of July, but this data usually lags a month. So as of June twenty, twenty five, one hundred and ten, so more than one third of all of the major housing markets in the United States are seeing a decline. Now, the scale of these declines really does matter. We should dig into that because some of them are seeing what I would call borderline crash situations where others are down half a percent. So there’s a really big scale on the sort of scary, full-blown crash.
End of the spectrum are mostly markets in Florida, probably not surprising to anyone who follows this stuff, but Punta Goda has the biggest year over year declines dropping 12% in just one year. That is a huge decline. That is a crash in my opinion. We also have other markets in Florida that are bordering on that territory, Cape Coral, Fort Myers, that it’s down almost 10%. We have Northport, Sarasota and Brader. 10 is at eight and a 5% Naples is at 7%. Then we to round out the top five or bottom five, I guess you would say Austin, Texas is still at negative 6%. That’s after years of declining. Then we see Tampa, we see Vero Beach, then it drops to Hawaii. So these are serious declines, right? If you see a single year decline of six, seven, 8%, that is worrisome and from all accounts, especially in Florida, these are going to get worse.
Now, other markets, if you look at Salem, Oregon, yeah, it’s counted in that 110 markets that are declining, but it’s literally 0.01% decline. So it’s basically flat. A lot of the areas that are seeing declines outside of the Sunbelt or the Gulf Coach regions are pretty mild. So you look at Nashville, for example, big market in a decline. The decline though 0.015%, I’m not really worried about that. To me, that is flat. Same with Birmingham, Alabama in Seattle here where I live, it’s 0.4% down. So these things aren’t super concerning to me, but the fact that more and more markets keep getting added to this list, we went from one 10th of all markets to now one third of all markets just says to me a couple of things. First and foremost, you have to be careful in almost every market right now, even the ones that are appreciating still, I would expect in almost every one of those markets the appreciation rate to start to go down.
So if it grew 6% last year, it probably will still grow in the next year, but do not assume the same rates of appreciation that we’ve seen for the last couple of years. I would personally haircut most of these things and I would think about maybe underwriting even a strong market to a lower appreciation rate, like two to maybe 3%. I would personally not advocate underwriting any market for above average long-term appreciation. The long-term appreciation rate in the US is about 3.4%. That’s kind of the highest I would go even and only for a super strong market. The markets I operate in, I want ones that are going to appreciate, but I might assume one to 2% appreciation even in markets that are growing today. So that’s the number one thing. The second thing, and this is just more psychological than it is tactical, but I do think there’s an increasing chance.
I’ve been saying this for, I don’t know, 3, 4, 5 months now that there is going to be a correction in home prices on a national level. And the reason I say this is psychological is because it doesn’t really change what’s going on in your individual market. That obviously depends on local dynamics, but it will impact what you read about on the news. It will probably impact what your friends or your family members say to you about buying real estate. And I think we should all just sort of be prepared for that because home prices are declining in a lot of markets and as investors we have to recognize that that is opportunity and risk. But I think a lot of people who are just more casual observers of the housing market are just going to only see the risk part of that. And for you as an investor, if you want to be active in the market, you have to sort of see through some of that noise that we’re going to hear in the media. That’s why we have a show on the markets to sort of cut through that noise and talk about it. But I do think it’s something to be prepared for. We do need to take a quick break, but when we get back, we’re going to talk about construction. I know not everyone listening is into new construction, but this too has big impacts on regular investors will be right back.
Welcome back to On the Market. I’m Dave Meyer here talking about three important trends you all need to be paying attention to. Our first story today was about prices, but now we’re going to move on to new construction because I should note this, but all of the prices that I was talking about earlier are for what’s known as existing homes. These are homes that have been bought and sold before, not new construction. In our second trend here that we’re going to be looking at, we’re going to be looking at the flip side of the equation and see what’s going on there because some people might be interested in buying new construction, but even if you’re not, some of the stuff going on here can spill into the existing home market, which we’re going to talk about as well. So the big headline is that new construction is pretty weak.
When we look at the data that we got from June, building permits declined four and a half percent year over year, which might not sound like a lot, but it is actually a pretty significant decline. Permits are basically a lead indicator how many people are applying to build new homes. We have this other metric called completions, which is basically how many homes actually get finished and put up for sale on the market completions were actually down 24% year over year on an annualized basis, which is a massive decline from where we were in June, 2024. Now what’s interesting here is that some of the data for new construction is aggregated between multifamily and single family housing. If you listen the show, you know that multifamily housing, new construction has been really low. There’s been an oversupply in that market. The pendulum has swung back in the other direction and there’s been relatively low construction there for a couple of years now.
But what’s notable, and the reason I’m bringing this up today is that we are seeing new declines in single family housing permits just for single families went down 4% and starts went down 5% and completions were down 12.5% just for the single family segment. And that’s really notable because a lot of the headlines you see about construction over the last couple of years have really been because multifamily is down so much that takes the total unit countdown and it’s just a different industry, but this weakness is now spreading to single family homes. I was reading an article on realtor.com and their chief economist, Danielle Hale, she wrote that quote, these Lowe’s in single family construction come as nearly two in five builders. So 40% of builders reported making price cuts in June underscoring the price sensitivity of today’s home shopper. So this quote is really illuminating because it tells us why, and it always comes down to this, why are we losing construction?
Well, builders don’t have a lot of confidence that they’re going to be able to sell their finished products, whether six, nine a year, two years down the line from now at the prices that they need to get to earn the profit they want or to take on the risk of doing a new construction project, which is really relatively risky. And so in a way, what we’re seeing with permitting and all this is really not that surprising because we’ve seen a drop in builder sentiment for the last couple months and this is a really important lead indicator for what’s going on. And they have this by region too, which is going to be a trick all of you investors can take out and use because you are going to want to understand where construction is actually happening if it’s happening in your area, the markets that you’re operating in, and I’ll share with you some of that in just a little bit.
But we’re seeing at the highest level first is that builder sentiment overall has dropped down to a level of 33. Now, that number probably makes no sense to you at all right now, but I’ll explain it to you. It’s what’s known as an index and basically anything 50, the level 50 is basically neutral, right? It’s kind of like a five out of 10. And so if builder confidence or builder sentiment is 50, it means about half of the builders are feeling good, half are not feeling good right now, at a level of 33, that means about two out of every through builders are not feeling pretty good about the market and only one out of three is feeling good, and it is notable, slightly notable that the number jumped up a little bit from June to July. It went from 32 to 33, but this is way lower than where we started the beginning of the year.
In January we’re at 47, so close to neutral, which is pretty good given where interest rates are right? But we’ve seen that drop all the way down to 33%. So we’ve seen a very pronounced souring of sentiment in the builder industry. And again, this is happening now in a more pronounced way on the single family level. Just as an example, at the beginning of the year we saw the builder sentiment level for single families alone at 59, that’s dropped down to 43%. So basically we went from 60% confidence to 43% confidence in just a couple of months. That is a pretty dramatic, I’ve watched these indexes, they don’t move that much that quickly. And so seeing it drop down that much is a significant finding and that’s why we’re talking about it. Now, if we want to, we can dig a little bit deeper and say why is builder sentiment deteriorating?
We can sort of follow the thread here. Construction is down. Why builder sentiment’s down? Why is builder sentiment down? Well, we have some data on that too. The main reason is that perspective buyer traffic is declining. We’ve talked about this, but actually overall mortgage purchase applications are doing okay, but it seems like in a new construction segment we’re seeing a pullback in demand. There is another index, same way it’s measured, as I said before, 50 is neutral. So traffic for prospective buyers when we started the year was at a 32, so already not great, but 32, it’s okay. Now it’s dropped down to 2020 is not a good number. That means only one out of five builders on average is feeling like they’re getting good traffic from prospective buyers. No wonder they’re stopping building, right? If you stop seeing people showing up to buy the homes that you already have that are going to sit in your inventory, would you keep building?
I don’t think so. So that’s number one thing that’s happening. The second thing is just softer pricing. If there’s less people coming in the door, you’re going to have to lower your prices. And for builders, price cuts are really used as a last resort incentive. They do not want to lower their home prices because it resets their comps. Just imagine if you were building 20 or 30 homes in the same subdivision and you lowered the price for one. Well, you sure bet that every other buyer who comes in the market’s going to want that lower price. So they’re willing to do everything including rate buy downs and seller credits and all these other things to avoid dropping prices. But even still, they’re having to drop prices. Like I said earlier, 40% of home builders are now reporting that they are cutting prices and they’re basically turning to their incentive of last resort.
And so this is just again, why we’re probably going to see single family home construction decline for the foreseeable future. Now of course there are regional trends that we should be talking about. When you look at builder confidence in general, it’s actually still pretty good in the northeast and the Midwest. So in the Midwest, for example, you all know I am a shill for the Midwest, but builder confidence was 44 in January and it is now 44 in the Midwest. It’s slow and steady in the Midwest, always the same, which I’m totally fine with. So that hasn’t changed in the Northeast, it started super high, it’s 65, it’s now down to 48. It’s still the highest of any region, but it’s come down pretty considerably. Whereas when we look at the south, it started at 47, not bad, but that’s dropped all the way down to 29%.
And when look at the west, that started at 42% and dropped down to 25. And so this is really helpful in understanding and forecasting what’s going on here because we are seeing this oversupply in the south. That’s a big reason why prices are declining, right? If you look at Florida or Texas or some of these markets, they’ve built a lot. So seeing builders peel back in these markets is not only logical, it’s kind of to be expected. This is a normal housing cycle. When they build a little too much, they get a little too aggressive, maybe a little too confident, then the buyers pull back and they say, oh, whoa, whoa, we’ve built way too much time for us to pull back on construction. And we’re seeing that. So it is not surprising or a further sign of decline in the south that there’s less building there.
That’s actually a sign that they’re trying to find a bottom right that there’s more likely to find a bottom in those markets because we won’t be flooding those markets with new construction. So if you work and live in those markets and you’re concerned about prices declining, you actually probably want to see a slowdown in new home construction in those markets. So that’s a really good indicator for everyone to watch. Meanwhile, I think when you look at places like the Midwest and the Northeast, you can expect a continuation of what we’ve been seeing. Now, those markets have not traditionally been overbuilt, they don’t build as much, and so we’ll probably still see more inventory coming online, but it’s not like all of a sudden builders are flocking to the northeast and Midwest to start building in mass huge tract homes and subdivisions like they do in Florida.
Instead, I find this comforting as an investor in the Midwest is that I think that it’s probably going to just keep going slow and steady the way that it has been historically. Now you’re going to want to look at individual markets because obviously the Midwest or the South, those are big regions, but generally speaking, that’s what’s going on. So again, this is why I think new construction is something everyone needs to be keeping an eye on. Over the last couple of years we’ve been suggesting to you on this show to look at multifamily permits to see where it’s getting oversupplied. But given these trends, I think looking at single family permits, this is stuff you can find for free. You can go on the Fred website and just Google new building permits, Dallas, Texas, and you’ll get this for free. And just look at what’s going on in your market.
It can help you inform, sort of informs your buying strategy. Our prices going to keep declining our new construction, or maybe they’re becoming really good value in your market in Dallas. That’s actually true in a lot of cases. So it just helps you identify the type of asset you could be looking for and where prices are likely to go. So definitely check that out. Alright, that was our second trend that you need to keep an eye on. Next, we’re going to talk about how we have reached a all time high for contract cancellations in June, and this too has huge implications on how you adjust your own investing strategy. I’m going to share with you my thoughts right after this break. We’ll be right back.
Hey everyone, welcome back to On the Market. I’m Dave Meyer, sharing with you three housing trends you should be keeping an eye on. So far, we talked about prices, we’ve talked about new construction, but next I want to turn our attention to the fact that we now have a new record high for pending home sales cancellations. So basically what happens is a property goes on market eventually a buyer and a seller agree on basic terms and that is going under contract. But from that point, it still takes 30 or 60 days to actually close. And during that closing period, legally or technically what it is called is pending, that home has gone pending. And so what I’m talking about here is the number of contracts that are pending but ultimately failed to transact and to close has gone up. As of June, 2025, according to Redfin, 15, one 5% of all pending contracts are now getting canceled.
And that is actually a lot. It’s the highest that we’ve seen in the time that Redfin has been tracking this data, at least for the last eight years. And that’s not a huge long dataset, but it does show us what happened pre pandemic. It showed us what happened during the pandemic and since the pandemic, and we can see that this is the highest rate. So just for some frame of reference, like in 2017 back when things were normal, that till 2019, the average pending sales was 11 to 12% of those fell through. So it’s still actually a decent amount more than 10%. Then during the pandemic, it got even lower. In June, 2020, it went to 10.9. In 2021 when there was just the massive frenzy, it dropped down to 10%. But since then it’s bumped back up in 20 22, 23, 24, it’s closer to 14%. Now we’re closer to 15%.
So I don’t want anyone to freak out. It’s not like we’re in totally uncharted territory from where we’ve been the last couple of years. But the fact that it is going up I think is notable for two reasons. One, it just tells us that there might be further price declines in the us. That’s one of the reasons why I keep saying that there might be a national housing correction in the next year, but it also points us as investors to some things that we can do in our own bidding strategy and in our own investing strategy that may be beneficial to us. So we’re going to get into that. But I first just want to mention why this happens in case it’s not obvious. Why do more contracts get canceled? Well, it means that buyers have leverage. And if you’ve ever bought a house, you know that during that closing period, normally you have these different milestones where you can decide if you want to get out of the contract.
Now, that’s an oversimplification of what’s going on here, but just as an example, a lot of contracts will have an inspection contingency, which means that in the first, let’s call it 10 days of the buyer can get an inspection if they choose and they can terminate the contract if they don’t like what’s in the inspection, or perhaps they negotiate with the seller. Seller doesn’t want to give any money back on the contract because of the inspection, and so they break off the contract. That is not all that unusual for that to happen. There are other contingencies there. Some have insurance contingencies. Many of them have financing or appraisal contingencies. These things exist. But during the pandemic, because things were so competitive, buyers were often waiving their right to these contingencies in the first place. So you may have heard of this, but people were saying, I’m not even going to get an inspection because I want this property so bad, or I’m not going to wait or have an option of an appraisal contingency.
I’ll just bring cash to the table in case my property doesn’t appraise for what I needed to appraise for. And that’s pretty wild. That is not a normal thing to happen. That is pretty unique to the pandemic timeline. But that was happening. But obviously now we are moving back into more of a buyer’s market, and basically what’s happening is buyers are using that leverage that they have. They are insisting when they write offers to have these contingencies back. And then secondly, they’re more willing to actually exercise those contingencies because for years, maybe you had an inspection objection contingency in there, but if it came back at just two or $3,000 of work that needed to be done, you didn’t want to go out there and start facing another 30 home buyers bidding against each other in the next property you went for. So you’d just eat it and you would take the $3,000 and just wave your contingency.
That’s not really happening anymore. I don’t think buyers are nearly as afraid of walking away from the deal. And the situation has shifted where sellers are now increasingly afraid of buyers walking away. There are more sellers than buyers in a lot of markets, and they need to compete for those buyers. And so now we’re in a situation where buyers are much more willing to cancel, where sellers are the ones who really want to hold onto the contracts that they have. Now, this is a super key insight for investors than I’m going to talk about in just a minute. But I also just want to mention that these cancellation rates, just like everything that we’ve been talking about today, do have regional variances. We’re seeing in places, again in Florida, in the Sunbelt, be the biggest places where there are cancellations. So in Jacksonville, Florida, for example, more than one in five contracts were canceled 21%.
That’s the highest in the us. Vegas is 20%, Atlanta is 20%. So we’re seeing really big high levels. We’re also other places in the Sunbelt, San Antonio, Orlando, Phoenix, Miami, all in the top 10 there. On the other end of the spectrum, it’s these places that we talk about as being strong markets like NASA County, New York, Milwaukee, Montgomery, Pennsylvania. Those are all pretty low still. So take what I’m about to say with a grain of salt depending on what region you live in. But to me, the fact that contract cancellations go up is a critical shift for investors and how they handle their own portfolio because now you have the leverage. We talk about this in a buyer’s market, but this is a perfect example of how you actually have leverage. And so here are just a couple of things I would think about if I were going out and offering on properties, if I were you first.
Think about how you want to use your leverage to negotiate. You could go out there and low ball a lot of offers. That’s definitely possible. You could go out there and demand tons of concessions. That’s also possible. But typically, at least in my experience, if you go out there and are really aggressive on every single thing, the seller is not going to really trust you and it’s going to be difficult to actually pull off a deal. Instead of doing that, I recommend really thinking about what a seller wants in this type of market. And what I see increasingly is that what they want is deals to go through. They’re very nervous about these contracts that they’ve probably worked hard to get, not actually executing and transacting, and then they would have to go out and put their property back on the market, which could sit for a while again.
And so what this means is that sometimes if they’re really nervous about that, they might be willing to be flexible on price. I’ve listed a house for sale and I think this is a good house that’s going to sell, but would I take three grand less? Would I take five grand less? Would I take eight grand less if I knew that this property was going to sell? Probably if they came to me and said, I have a cash offer, or I am going to put down a significant earnest deposit, or I’m going to waive my appraisal contingency. I’m going to do a past fail inspection, and I’m not going to nickel and dime you on all the inspections. All of those things would be valuable to me as a seller, and they could be valuable to you in terms of dollars as a buyer. So just think about the bid strategy that you want to create for yourself.
If getting the asset at the lowest possible dollar is valuable to you, which I think for most investors, that’s probably what you want the most. Think about how you can put things into your offer to get the seller to trust you and be willing to sell it to you at that lower price. And again, I think that’s really in terms of these things that really signal your intent to close. So again, these are things like short close periods, waiving finance contingencies, waiving inspection objections, or just coming up. You don’t have to waive it completely, but coming up with really reasonable things that signal to the seller that you are going to close on this deal if you give them that price because the last thing that they want is like, Hey, I’m going to give a discount to this investor. They might back out anyway.
That’s the worst case scenario for the seller, right? So think about what’s valuable to you and working to a mutually beneficial outcome with the person you’re hoping will sell you their home. So that’s it. That’s my advice. Particularly if you’re in one of these markets where there are a lot of cancellations, I would consider adjusting your bid strategy accordingly. Of course, if you’re in a tight market, you’re still going to have to be pretty aggressive. You’re not going to have the same opportunity to negotiate, but you can still think about doing some of these things because with some motivated sellers, it definitely can work. Alright, everyone, well, thank you all for being here and listening to this episode of On the Market. I hope you appreciate and learn something from these key trends that I’m following on the housing market. Again, it’s prices and regional changes in prices, the decline in new construction, and the uptick in contract cancellations. All super important things that you should be incorporating into your own investing strategy. That’s it. That’s what we got for you today. Thank you again for listening. We’ll see you next time on the market.