Home deals go bust
As the financial crisis intensifies, the few potential buyers out there are reconsidering a purchase.
NEW YORK (CNNMoney.com) -- The Dow has shed thousands of points and the global economy is in crisis.
So who wants to buys a house right now? Not many people, it turns out.
The National Association of Home Builders, for instance, has seen its contract cancellations spike recently to as high as 30%, compared with an average rate of about 20%. During the housing boom, as few as 5% of sales were cancelled.
"The events of the past couple of weeks have people's heads spinning," said Steve Melman, NAHB's director of economic surveys.
The National Association of Realtors estimates that about 25% of the clients its members are working with are staying on the sidelines. They're looking at homes and intend to buy at some point, but right now they're worried about their jobs, their declining investments and falling housing prices.
"You have to have a lot of confidence to make this kind of big-ticket purchase in the current environment," said NAR spokesman Walter Molony.
Real estate agent Bob Rose was helping one couple look for an investment property in battered Contra Costa County, Calif., hoping to find a bargain that they could sell in a few years.
Then, on Sept. 29 the Dow dove nearly 800 points and the couple decided not to buy. "They told me they had lost about a quarter of their retirement portfolio," said Rose, and that they could no longer afford it.
Even some buyers who are already in contract are managing to pull out of sales amidst all the economic turmoil.
Two weeks ago, one Washington state couple, Sharif Tai and Gaby Ghafari, went into contract on a new $450,000, three bed, three bath, house in central Seattle. Soon afterwards, the stock market began its steep descent.
"It wasn't that we lost money [in the market] or that we were worried about our jobs," said Tai, a software developer in his mid-20s. "We thought we could get a better deal, so we decided to wait."
The couple backed out of the deal by citing problems with the inspection, but they haven't given up on making a purchase.
"We're keeping our eyes out," said Tai. "We want to see how things shake out. If we see a great deal, we'll take it."
Other buyers are demanding sweeteners before they close a deal during such a rocky time. San Francisco agent Jim Holt had clients go into contract on Sept. 29, on a $750,000 home in town. But by the end of the week the Dow had lost over 800 points and the buyer demanded a whopping $50,000 price cut.
"Buyers are seeing the [market implosion] as an opportunity to get concessions," said Holt. In the end, the seller only agreed to reduce the price by $5,000 - but that's better than nothing.
Other house hunters are managing to wring more concessions out of sellers even on top of existing discounts.
Rich Machado, an agent with the Smart Homebuyer Team in New Bedford, Mass., had already helped one buyer get a seller to take $9,000 off the price of a house listed for $229,000, and throw in $6,000 in closing costs, $1,800 for an electric upgrade and $400 for a home service contract.
The deal went into contract two weeks ago. Despite that impressive array of incentives, "the buyer is balking," said Machado. "He's asking for another $10,000 off the price."
The seller hasn't caved in yet - but with demand drying up, he may be forced to come around.
As the losses mount on Wall Street - the Dow lost 678 points on Thursday alone - things will undoubtedly become even more difficult for sellers.