It can't happen here. Well, sure it could, and it has before, but so far, the phenomenon has not reached Greenwich

up in smoke

(Nationally) Home sale cancellations surged to another 2-year high as buyers pull out

About 63,000 home purchase agreements were called off in July, equal to 16% of homes that went into contract that month, according to a new analysis by Redfin. That is up from 15% of deals that collapsed in June and is the highest rate in more than two years.

By comparison, just one year ago, the home cancellation level was around 12.5%.

There are two reasons for the increase in cancellations. Homes are sitting on the market longer, giving buyers more power to demand repairs, concessions and other contingencies. If sellers say no, buyers are more likely to back out and move on "because they're confident they can find something better," said Heather Kruayai, a Redfin real estate agent based in Jacksonville, Florida.

Homebuyers are also worried about the increasingly dark economic outlook as the Federal Reserve moves to tighten rates at the fastest pace in decades, risking a possible recession.

"Buyers are also skittish because they’re afraid a potential recession could cause home prices to drop," Kruayai said. "They don’t want to end up in a situation where they purchase a home, and it’s worth $200,000 less in two years, so some are opting to wait in hopes of buying when prices are lower."

Jacksonville, Florida, saw the highest percentage of home cancellations across the 93 metropolitan areas that Redfin analyzed, with 800 home-purchase agreements called off last month — or about 29.3% of homes that went under contract in the city. That was followed by Las Vegas and Lakeland, Florida, at 27% and 26%, respectively.

Real estate practice in Greenwich and a few surrounding towns are unusual in that we don’t use (non-binding) binders, and instead, the agents and buyers and sellers negotiate to an “accepted offer” and then turn the deal over to lawyers, who fight and bicker between themselves until a binding contract is ready. Years ago, tired of squabbling over the cost of chimney repairs and broken ovens, the law mafia established a custom wherein building inspections are usually conducted before final contracts are signed, leaving, usually, just mortgage approval as a contingency, and even then, in a hot market, that too is waived.

In any jurisdiction in the U.S., an agreement to buy or sell real estate isn’t binding until there's a contract fully executed by both parties, That’s why “accepted offers” still leave the parties free to sell to a higher bidder who might come along, and buyers to change their mind if a better house appears.

All of which is to say that it’s impossible to measure how many Greenwich deals fall through, because, by the time a contract is final, it’s very hard to back out of it, and it’s usually quite expensive to do so.

So, with no way to tally busted deals, I called radio celebrities Gideon Fountain and Jonathan Wilcox this morning on their WGCH radio show to ask whether they’re seeing a “surge in contract cancelations”, or hearing about them from other agents in their offices, and they haven’t. Mortgages aren’t that important to our high-end buyers; indeed, many of our billionaires take out a “millionaires (now $750,000) mortgage only because they can take advantage of the mortgage interest deduction, and while others may go for more because of the leverage it affords, they can just reach into their other pocket and pay the difference with spare change if rates rise.

That’s not true for us peons, of course, and the market may soon see a rise in cancellations among the under $2 million shanty crowd. But so far, buyers are holding firm.