RALEIGH – Homebuyers in the Raleigh metro area are increasingly pulling away from real estate contracts to buy homes, new data from national real estate brokerage firm Redfin shows.
Of the 102 metro areas surveyed, the region has the 10th lowest percentage of contracts failing as of June 2022 with 7% of contracts. Raleigh’s Metropolitan Statistical Area (MSA) includes Wake, Johnston and Franklin Counties.
While 7% is the highest percentage in Raleigh’s MSA since February 2021, it is well below the national average for June 2022, 14.9%.
And it’s doing so even as buyers may be in a slightly better bargaining position than they have been in recent months, as home sellers in the Raleigh area slashed the price of one in four homes for sale in June. And a separate Redfin report found that after two years of historically low inventory, Raleigh is also putting an increasing number of homes on the market, with new listings up 20% from the same period in 2021.
Yet our local real estate market is underserved, said Jim Allen, owner and principal broker for The Jim Allen Group, in an interview with WRAL TechWire this week. Still, there are some signs that more homes could come onto the market, Allen said. “We’re finding that sellers are now jumping on the fence when it comes to selling,” Allen said. “And list their homes with us to maximize their share of their ownership.”
Prices are falling for many homes in the Raleigh area; the entries also grow
What’s happening
Nationwide, nearly 15% of all sales contracts were canceled in June, according to Redfin analysis. But in the Raleigh market, only 7% of deals failed.
“North Carolina has to get out of a particularly difficult contract,” Courtney Brown, a Hunter Rowe real estate agent and former attorney, said in an interview with WRAL TechWire. “It’s really tough on the sell side.”
On the homebuyer side of the North Carolina Bar Association and North Carolina REALTORS Association standard contract form, buyers typically have a contractual right to back out of the deal during the due diligence period, although many homebuyers have waived that right to sell homes compete in a competitive real estate market.
“I tell my buyers that due diligence is like a miniature contract,” Brown said. “It’s a fee you pay to take the house off the market so you can proceed with the contract.”
And while there may be fewer bidders in multiple-offer situations now than in previous months when inventory was lower, Roger Bernholz, vice president and general counsel at real estate brokerage Triangle Coldwell Banker HPW, said in an interview with WRAL TechWire the triangle is still always a seller’s market.
“The rise in price is probably slowing down, but I don’t see our value falling,” said Bernholz. “There’s just too much happening on the business front in the Triangle and surrounding counties.”
North Carolina was twice ranked number one for business this week, with a leading factor in both analyzes being economic development activity in the Greater Triangle and the rest of North Carolina.
Wake County’s real estate market is experiencing a price pause — realtors are still predicting prices will rise
Why the jump?
Redfin data shows that as of June 2022, the percentage of homes that were off contract in the Raleigh area increased. Still, the June rate of 7% is lower than the average across the entire dataset for the period since January 2017, which is 9.34%.
But as of June 2020, the average percentage of homes that are out of contract is 6.6%. And for every month between February 2022 and May 2022, the rate of homes falling out of contract was below 5%.
What changed in June?
“The only obvious answer to me is the rise in mortgage rates,” said Matt Fowler, managing director of Triangle Multiple Listing Service, TMLS. “If you have people who aren’t tied to an interest rate before closing, they may have seen their effective mortgage payment increase.”
Another study released earlier this year by Redfin found that a mortgage rate hike of just 0.4% could hurt the spending power of homebuyers in the Raleigh area by $13,500. But mortgage rates have risen dramatically since this report was published, with the most recent median rate on a 30-year fixed-rate mortgage at 5.51%, according to Freddie Mac’s weekly survey.
“I can imagine someone expecting to pay $2,400, but when they were about to close it was $3,200,” Fowler said.
Still, Allen said, most buyers drop out for personal reasons. “Most fail during the due diligence phase due to a buyer’s change in relocation plans, loss of employment, or other personal family reasons.”
A drop in the 5-7% range is normal, Allen said.
Mortgage rates fell last week, but the drop offers little relief to Triangle homebuyers
Triangle residents are still feeling the pressure
First-time homebuyers may be feeling particularly overwhelmed right now, and anyone looking to switch homes may be feeling squeezed by current market conditions, Fowler said.
“We’re still in a position, and we talk about it all the time, saying the market is tight or hot, or all those phrases,” Fowler said. “If you’re a renter or a buyer, you’re probably feeling quite a bit of pressure right now.”
That, too, could be a factor: The Triangle faces a greater housing shortage than other markets, making those lucky enough to win a contract less likely to walk away from the deal.
“Over the past two months, due diligence fees seem to have come down,” Brown said. “For example, when I started out in real estate, the due diligence was $1,000, and while it’s gone down recently, it hasn’t gone down that much.”
In fact, if you get a home under contract and have raised a large amount of financial capital as a non-recoverable due diligence fee, you’re much less likely to walk away, Brown explained.
“People don’t walk away from $10,000 in due diligence fees,” Brown said.
Data shows that Triangle’s housing markets may have cooled in June — except for renters