Contract Cancellations Climb as Sellers Ready to Cut Deals

Dave:
It is supposed to be the peak season for the housing market right now, but this year we’ve got a weird one today on the market. I’m going to update you all on three major trends you need to be paying attention to. Hey everyone, it’s Dave, host of On the Market and Head of Real Estate Investing for BiggerPockets where I spend my days studying the housing market and economy and sharing what I learned with all of you here. And today I’m going to share with you three trends about the housing market that you should all be paying attention to, whether you’re looking to buy, optimize your portfolio or maybe work in the industry as an agent, a lender or a property manager. You’re going to want to pay attention to these three trends which are number one, the rapidly emerging buyer’s market. We’ve talked about that a little bit on the show, but we’re going to dive deep into that today.
Contract cancellations and the fact that they’re hitting new highs. And third, the latest news on mortgage delinquencies, which if you haven’t been listening to the show, I always say that this is sort of our main canary in the coal mine for any sort of housing market decline or crashes. So I will make sure to give you all the latest news there. Let’s get into it. So first up, our first trend that you should be paying attention to right now is the emerging buyer’s market, and there is some new data that confirms what we’ve been talking about on the show for the last couple of weeks or months and sort of just paints a really clear picture, at least in my mind. Redfin just put out some new data that just sort of looks at this at the highest possible broadest level, which is how many sellers are there in the market and how many buyers are currently in the housing market.
And the TLDR here is that sellers have been outpacing buyers for at least a year now, but the number by which they are outpacing buyers just keeps growing and it’s growing at a faster and faster rate. So if we’re looking at this on YouTube, you can probably see that the chart here right now, but if you’re listening, I’ll just describe it to you. The number of sellers is sort of going straight up and this is sort of counter, or at least it’s a change from the narrative that we’ve had for many years where inventory wasn’t increasing, inventory is increasing. It has been for a year or so we’ve been talking about that, but the trend looks like it’s going to keep going up from here. Before I move on from just this Redfin data, I think it’s super important here, which first, I guess I should tell you, we’ve got about 1.94 million sellers and about 1.45 million buyers.
So it’s a difference of about 500,000 and that’s pretty considerable, but the thing that I want you all to remember, especially as we talk about some of the other trends that are going on is that contrary to what you might think, the reason this is changing is not because buyers are really leaving the market, they are down a little bit but not really in any significant way. That’s really changing market dynamics. What’s really happening is there are just more and more sellers in the market, and that’s going to be important to some of the takeaways that I’m going to talk about and what this means for investors and people in the industry. But just remember that buyers are staying somewhat stagnant. They’re a little down. There are more and more sellers in the market. The other thing I think that you need to know, and I’ll talk a little bit more about this in a bit, but this isn’t really coming from distress, so it’s not like sellers all of a sudden are, these are short sales or foreclosures or auctions.
We’re going to talk more about this later. Personally, I just kind of think that people are waiting for rate conditions to change. I think people were thinking, oh, I’ll put off my move. I’ll pull off selling my house for a year or two years or three years and now that’s just not happening or people can’t wait any longer. And so we are resuming a normal market. I think it’s important to remember here that the amount of sellers increasing is not abnormal at all. Normally having 1.9 million sellers, which is the amount I stated, isn’t actually all that many. If you go back to pre pandemic levels, it was like 2.1 million, 2.2 million. So we’re still below that level. I think we are kind of just starting to revert back to a more normal level of sellers. Of course always caveat this, but we should talk about the fact that there are regional differences.
The numbers I’ve been citing, like I said, were kind of the biggest big picture, high level analysis here just looking at total buyers and sellers. But when you break down the individual markets, you see that a lot of markets in the southeast and in the Sunbelt are at their biggest risk of price declines because they’re in the strongest buyer’s market. I should probably explain that a little bit more before I actually name these markets. So when I say we’re in a buyer’s market, to me the definition of that is just what I’ve been talking about, that there are more sellers than buyers, and the reason that is called a buyer’s market is because it gives buyers the leverage and the negotiating power in the marketplace when there are more sellers than buyers. Sellers need to compete for the buyers and they do that by being willing to negotiate.
If two sellers have to compete for one buyer for example, they can’t demand that you waive your inspection or that you pay over asking price or that you waive your appraisal. Instead, buyers are being able to buy under list price. They can have longer closing, they can ask for contingencies. All these things happen primarily in a buyer’s market and a buyer’s market is advantageous for buyers obviously because you get negotiating power, but it also comes with risk because if you buy and then that buyer’s market continues, if you wanted to go and sell your property, it might be worth a little bit less or it might be harder to sell that property. Now, most of the times these declines in prices only last six quarters, two years, something like that. But obviously there is possibility that that is bigger like we saw in the great financial crisis.
That is typically unusual, but that is possible. So when I list these cities that I’m going to tell you of the biggest bias market, that means there could be opportunities there, but keep in mind that also means that there is potential risk for further price declines in these markets. So with that caveat out of the way, what I am seeing as the top five highest risk markets, and this is according to totality, they are Albuquerque, New Mexico, Atlanta, Georgia, which has been one of the hottest markets in the country the last couple of years. Winter Haven, Florida, Tampa, Florida, another super hot one and two set out in Arizona. They’re all pretty hot markets over the last couple of years, but these are the areas essentially where sellers are outpacing buyers more and more and therefore are at the biggest risk of declines. Meanwhile, when you look at markets in the northeast, particularly areas like New Jersey and Massachusetts and Connecticut, you see some areas of the Midwest, some of them are still in seller’s markets and there are obviously a lot of places that are neutral as well.
So if you are using this information to make decisions about your own portfolio, you’re going to want to check what’s happening in your own individual market. The question probably becomes if you’re listening to this, well great, that’s all cool. What’s happening right now? Is this going to continue? Because if you believe it’s going to continue, that might impact your buying decision, your portfolio strategy. So let’s talk about that a little bit. Short answer for me, no one knows, but I personally think it’s going to continue. I think we are in a buyer’s market and we’ll be for the foreseeable future. That doesn’t mean years, but I have a hard time really imagining what changes it and swings it back into a seller’s market in the next three-ish months, six months, I don’t know exactly, but I’m saying foreseeable future, let’s call it this summer. I don’t really see it swinging back to a seller’s market because just do the thought exercise for yourself.
Ask yourself what possibly keeps prices up right now? What swings it back to sellers and are those things likely? Well, there’s basically two outcomes. One thing that could happen is we could see a resurgence of demand that might happen if rates really fell a lot, but if you listen to this show, I don’t think that’s going to happen in the near future. The Fed has said they’re unlikely to cut rates. We are seeing Wall Street and the bond market not super happy about things that are going on right now and those are keeping bond yields higher, which pusses up mortgage rates. So maybe we’ll see a little relief, but are we going to see a huge surge in demand? I don’t think so. Even if rates come down a little bit, I just think there’s too much other uncertainty in the market. We see this in inflation expectations.
We see it in consumer sentiment, and so I don’t see in the next couple months demand surging. The other thing that of course could happen to flip it back to a seller’s market is fewer sellers, fewer people selling their home. That could happen as well if people are not getting the prices that they want and they too are seeing economic uncertainty and maybe choose to put off moving or selling or upgrading or whatever. That could happen. But again, I wouldn’t expect it. I think the most likely scenario is that the trend that we’re seeing right now of relatively stable demand and increasing sellers is probably going to continue at least for the next couple of months. And when I looked forward to the end of the year, I’ve been sticking with my prediction. My prediction at the end of 2024 was that prices would be somewhat close to flat, somewhere between negative three and 3%.
I think that’s still probably the most likely scenario, but I’m on the lower end of that range, so I think we’ll probably be close to zero on a national level or down to 3%. Again, I’m not saying a crash, but I do think we’re going to see soft pricing across the country and probably in a lot of regions and even in regions that are still growing right now. I think those growth rates will probably come down and some of them that are growing modestly might turn flat or negative by the end of the year as well. Now before we go and move on to our next trend, I just want to say again, a buyer’s market presents both risk and opportunity and my goal here is not to scare anyone, it’s just to be honest about what I think is happening and what the data pretty strongly suggests right now is going to happen.
And I’m still buying a house, I just bought one yesterday and I just think that you need to adapt your strategy based on what’s going on in your individual market. You need to be looking for deals that are well under market value. You need to be buying really good intrinsic assets and not overpaying and negotiating. Use your leverage in a buyer’s market to buy great deals. And if you do that and focus on the longterm, you can absolutely still be investing. I’m not trying to scare people out of investing, but I do want you to think about how you should be adjusting your portfolio strategy based on these market conditions. Alright, so that was our first story today about the buyer’s market that is emerging and I think is going to continue. We have two more stories about cancellations and mortgage delinquencies. We’ll get to those right after this quick break.
Welcome back to On the Market. I’m Dave Meyer here, bringing you three trends that investors and industry professionals need to be paying attention to here in June of 2025. Before the break, we talked about the buyer’s market and the two other trends that I’m going to be talking about today are in line. They’re kind of on theme. I want to sort of dive into this and this will not be the only time we’re talking about a buyer’s market because as long as this is going on, I think it’s something that we’re going to need to be continuously talking about here on the show because it’s a big change from where we’ve been in recent years and it really does change the dynamics of the housing market. One of the main dynamics that has shifted is cancellations or contracts. You go buy property, put it under contract, usually have 30 ish, 60 days to actually close on that during which time you’re getting inspections, you’re getting appraisals, you’re getting your loan, you’re doing all of that During the pandemic, the number of cancellations that we had was really small and that’s because we were in a seller’s market, right?
Buyers, they didn’t want to get out of contracts at the same level. So even if your inspection came back with a couple of things, maybe you didn’t negotiate so hard and you were just willing to accept the property as is. I bought a couple properties sort of during the last couple of years where I just did pass fail inspections where it just gives me the right to opt out of the contract if there’s something so concerning that I don’t want to own the property, but I give up my right to sort of ask for a couple hundred bucks here, a thousand bucks there, I wouldn’t do that In today’s day and age. Right now we are in a buyer’s market and so we’re seeing that sentiment that I’m sort of describing at least about my own behavior and investing preferences that is happening sort of on a bigger, more national scale as we are seeing pending homes, the number of contracts that are pending, the number of cancellations are consistently going up.
Now I want to be clear that this is not some massive increase that should send anyone running for the hills. This is just an interesting trend that you should know about and I’ll explain a little bit why I think you should know about it. But as of April, 2025, 14.3% of homes that went under contract this month were canceled. That’s up from 13.5% last year. So if you compare last year to this year, it’s only one out of every a hundred more than are getting canceled, but it is up over where we had been for several years, which was closer to 12%. But again, that’s still only about one out of every 50 more contracts in this environment that might not sound like that much, but it does sort of change. And personally I just believe it sort of changes the mindset and sentiment of sellers and sort of shifts again, further shifts the dynamics between buyers and sellers.
And I will explain sort of what I think you as an investor can and should do about that. But first just want to mention again, always these regional trends. I think it’s important to point these out that markets that are having the most cancellations, Anaheim, California, nearly 16%, that’s up from 12.6%. We have Seattle, which is going up Milwaukee, which is one of the hottest markets right now that’s been going up Los Angeles and Nashville, other end of the spectrum, no surprise here. This is the New England area. We’re seeing Nassau County, New York, Boston, Montgomery County, Pennsylvania, Minneapolis, all of those. Now of course it’s going to depend on your market, but I want to get back to this idea that I mentioned earlier that this does matter to investors because there’s a couple of things going on here. First, the interesting thing will be to watch for more properties that come back on the market.
They were under contract for some reason, one or reason or another, they got canceled and then they come back on the market. And I think this is kind of similar to properties that have had price cuts recently because you may be able to identify sellers who they’re in a buyer’s market, so they might be willing to negotiate, but after this false start where maybe their confidence is hurt, maybe they’re just tired of this and they want to get rid of their property, they might be even more willing to negotiate especially, or at least I believe, especially if you can close quickly and you can think a little bit and put yourself in the shoes of the seller. They probably just want to be done with this. So to me, this sort of offers an opportunity to adjust your offer strategy for how you approach bidding on a property that you’re interested in because put yourself in the seller’s shoes, right?
What would you want after the disappointment of having a deal fall through? First and foremost, I would always try and see if you can learn why have your agent call the listing agent and see if they can give you information about it. Is it a structural issue? Is it a financing issue? Is it something different? If it’s a structural issue, yeah, that’s something you probably want to talk to ’em about and you want to write that into the contract, right? Obviously you might ask for concessions or you may ask for an inspection or a pre-inspection on that before you put it in under contract. So those are also some ideas, but I think honestly a lot of times the opportunity is if the buyer had to cancel because of financing issues, now you might have similar issues financing it, but if you’re in a strong position to take out a loan on this property, you might be able to go into a deal like this and negotiate a lower sales price.
If you can offer the seller what they really want, which is in a lot of cases offering them some assurances that this one is actually going to go through. So maybe you take two, three, 5% off the asking price, but you say, I am going to waive my finance contingency. That takes some risks sometimes, but if you really have done a pre-inspection or you have a strong inspection, you might be able to do that or maybe you put more earnest money down just to show them that you’re serious or maybe you try and do a really quick close in like 21 days. I don’t know if any of these particular tactics are going to work to actually secure you this deal, but I think the fact that there are these cancellations is going to be on the minds of sellers. It’s definitely going to be on the mind of listing agent and see if you can craft and adjust your offer strategy to mitigate those fears of the seller and the listing agent, but perhaps to get you a better deal because as we’ve talked about on the show, you can buy this kind of market, but ideally what you want to do is buy under list price to protect yourself against the potential of future price declines.
And so this strategy of targeting either price drops or in this case what we’re talking about, properties that come back on the market after a cancellation, this is just one tactic that you can use to potentially gain and use that leverage that you have because we’re in a buyer’s market and get a better price for your next acquisition. So that was our second trend. Cancellations of pending contracts. We got to take one more quick break, but when we get back we’ll talk about mortgage delinquencies and any signs of distress in the housing market. Stick with us.
Hey everyone. Welcome back to On the Market. We are talking today about trends in the housing market. We’ve talked about the buyer’s market that is emerging. We’ve talked about cancellations and before we go, our last but certainly not least important story is about delinquencies. Now, delinquencies, you’ve probably heard this, but this is basically just a measurement of how many people are not paying their mortgage on time, they are behind on their mortgage in one way or another, and there are all different ways that you can measure this. There’s regular delinquency, just 30 plus days, there’s serious delinquency, 90 plus days, then people get into pre foreclosure, they get foreclosure. So there’s all sorts of stuff going on here, but I’m just going to share with you what I think are the most important takeaways here that you should need to know. So Freddie Mac, which is one of the biggest mortgage companies in the country, and they have a ton of data on this stuff, they reported that single family homes, so residential properties, serious delinquency rates was 0.57%.
So just keep that in mind. That’s like one out of every 200 mortgages and that is actually down from 0.59% in March and really not all that different, but people are making a lot. There’s this famous chart that’s been circulating on social media recently that’s completely wrong. I’ll explain that in a minute, but people are freaking out about delinquencies and they actually went down from April to March. Now it is important to zoom out because it is still up from a year ago. We have seen in April of 2024 was 0.51%. Now it’s 0.57%. So that did go up a little bit, but we’re still really at that about one in every 200 mortgages level, and so that’s important to keep in perspective. Additionally, if you want to compare this to crash levels, if you want to really know what went on in 2010, the serious delinquency rate for Freddie Mac was like 4.2%.
So that was eight times higher than it is right now. So this is again another reason why even though there’s a lot of uncertainty right now, there is no sign right now of this forced selling that is required for the housing market to crash. When you look at other data like Fannie Mae, the other giant mortgage company, their data is a little bit different. They have a little bit different methodology, but the charts look almost exactly the same. The trends, the big takeaways are the same. And I should take a minute to just sort of reinforce why this is so important and why I think that this is sort of the canary in the coal mine for a housing market crash is in my mind there are essentially two things that really need to be happening for the market to truly crash. Talking like 10 plus percent declines in property values.
The first thing that needs to happen is prices need to start coming down because they’re in a buyer’s market and there’s more sellers than there are buyers that’s happening. We already talked about that, but that’s normal. That is sort of like a normal correction. When you look at when prices went down modestly in the early nineties for example, that’s what happened. There were some blips around the.com bubble where things flattened out. That’s what happened. But what takes a normal correction, again, total normal part of an economic cycle and goes from that to a full-blown crash like what we saw in 2007, 2008, is the declines get compounded by forced selling. That’s my take on it and I think the data really bears this out. Is that just having more sellers than buyers? Like yes, that will push down prices a little bit, but what really pours gas on this crash is when sellers don’t have a choice of whether they want to sell or not and they are forced to sell, that floods more inventory, it means that they can’t be patient because sellers right now, maybe they’re not getting their price, they just won’t sell.
They’ll let it sit on the market. But when you have forced sellers enter the market, that’s a totally different dynamic because banks are forcing them to sell their assets because their loans are getting called due, they’re going to get foreclosed on, and that creates a really bad situation. I think probably everyone intuitively understands that can really make a normal correction into a crash. And what causes for selling is mortgage delinquencies, right? There is no way you get forced to sell just because your property values go down. That’s actually a question I get quite a lot. People sometimes ask me, could someone foreclose on me if I’m underwater on my mortgage? No, actually that is not how this works. So let’s just say you buy a house for $400,000, you only put 5% down, so you borrowed $380,000 If your property goes down 7%, so it’s worth three 70, for example, you would be underwater.
You owe more on your mortgage than the property is worth. That’s what being underwater on your mortgage is. The bank cannot foreclose on you for that. That is not what happens. The bank can only foreclose on you if you stop making your mortgage payments. This is why I’m saying both of these things have to happen for a crash. You need prices to come down so that people go underwater on their mortgage, but also people need to stop paying their mortgages and become delinquent their mortgages. That’s when the foreclosure train starts. But as I just said, when you look at the data on delinquencies, that is not happening. That second part is not happening. They’ve gone up a little bit. They probably will go up a little bit more, but we are still at about one eighth of where we were during 2008. And when you look at other lead indicators of mortgage delinquencies, like the average credit score of the person who owns and has a mortgage right now, it is significantly better than it was in 2007 and 2008.
Of course, things can change, but if you look at the data right now, there is no reason to believe that we are going to see a really dramatic uptick in single family and residential delinquencies right now. The chart you may have seen on the internet, and the thing that is absolutely true is that delinquencies for multifamily properties are going up. So when you look at the serious delinquency rates, so 60 plus days or in foreclosure for Freddy and Fannie, they’re both at about 0.5%, and that is way up from pre pandemic where they were less than 0.1%. So again, these aren’t huge numbers, but this trend has actually changed. And honestly, I’m not surprised at all. We’ve been talking about this on the show for months if not years, that multifamily was going to see this kind of correction. And this is just not surprising, right?
The commercial market is more adjustable rate mortgages, and so every year we are seeing more and more properties that got a super low rate in 2020 or 2021 or 2022, they’re adjusting, and now those rates are going up, so people are going to be going delinquent. That is one of the reasons you will see multifamily delinquencies going up and why not? Coincidentally, the prices on multifamilies are down 15% nationally, right? When you look at the residential market where these delinquencies really haven’t budged, prices are still up year over year. Despite the buyer’s market. The prices are still up year over year. I think that might change, but again, they’re up multifamily, totally different situation. Delinquencies are going up and we see those prices down about 15% because everyone has been seeing this coming. The writing has been on the wall for multifamily for years, so the pricing given these delinquencies has sort of been baked in a little bit.
So that’s the third story. Residential mortgages are doing just fine. We’ve seen a slight uptick year over year, but they actually went down last month. So this is a wait and see, but there’s no immediate short-term acute fears going on. We’ll have to see what happens with the rest of economy, but right now, looking pretty solid multifamily still, the total rate isn’t so high, but it is going up pretty rapidly. That’s not super unexpected, and a lot of the crash that you would expect based on those delinquencies going up has sort of been pre foretold, and a lot of it has already happened. Although I do think multifamily prices very likely will come down even further than they are today. So that’s our show for you guys. Remember, the three trends that I want you all to be paying attention to are that buyer’s market adjusting your bid strategy and your buying strategy based on the likelihood of prices going down.
They might not even, but it behooves you right now to be conservative and to act like prices might go down in your area. That’s the best way to ensure that you’re not taking on excess risk in buying a deal. The second one is that there are more cancellations, and this could provide buying opportunities for people who adjust their bid strategy accordingly. And the third is that there is no for selling in the residential market right now, and we are still at relatively normal levels of distress. We are still below pre pandemic levels of distress in the housing market, and that is a good sign for people who don’t want a full-blown crash. That’s it everyone. Thanks so much for listening or watching this episode of On the Market. I’m Dave Meyer. See you next time.