Scott Van Voorhis

Despite all the hype about record home prices and bidding wars, all is not well with the real estate market in Massachusetts.
A large number of pending sales of homes and condominiums are falling through, with buyers in some cases getting cold feet after being pressured into waiving contingencies and agreeing to pay far more than they bargained for.

The collapse of a growing number of deals in their early stages, in turn, is injecting an undercurrent of volatility into what has been a red-hot market, at least for sellers, many of whom have been reaping big gains.

And there’s more than just anecdotal evidence of pending sales signs going up and coming down in rapid succession on the same home or condo – there is a growing and unsettling mismatch between the two key home sales stats.

Simply put, home sales have been falling or flat for months across the state, despite double-digit increases in pending sales, which, given their preliminary nature, are supposed to be an indicator of future activity.

“There is no doubt about it. The buyers, when they realize they are paying five or six figures over asking, it just makes everything else that much more scary,” said Zachary Christman, a Hammond Realty broker working in the pressure-cooker Newton and Brookline market. “They are worried they are paying too much, there is all this stuff they have to do with the house – it just scares them.”
Just take a look at the big gap between the number of pending home sales the Massachusetts Association of Realtors (MAR) reported for 2014 and the number of sales that actually closed.
Pending sales, according to MAR, shot up more than 11 percent in 2014. Yet closed sales, the real deal, fell by more than 2 percent.

Combine the two numbers, and you have a 13 percent failure rate, accounting for more than 9,000 pending sales that went south.

Take A Look At 2015
The numbers so far this year may be worse.
Pending sales in March went up 14 percent. But closed sales in May, when many of those pending sales should have come to fruition, fell more than 5 percent. Of course, not all of those pending sales would have closed in May, but certainly a lot would have, suggesting that anywhere from 15 to 20 percent fell through.

One factor driving some of the volatility is the huge amount of pressure buyers are facing, especially in the most competitive markets in and around Boston and Cambridge, where bidding wars are endemic.

It’s a cutthroat, survival-of-the-fittest atmosphere in which buyers must do things that would have seemed unthinkable just a few years ago, such as waiving their mortgage and home inspection contingencies.

And all too often, they are also being forced to bid over asking – sometimes way over – just to have a chance.

So basically, after signing their life away – agreeing to sign a purchase and sale agreement without having the condition of the home thoroughly vetted and with no escape if mortgage financing falls through – some buyers, especially first timers, are freaking out.

Christman, the Hammond Realty broker, has had it happen to him half a dozen times.
In some cases the buyers, after agreeing to buy a house, have managed to get some sort of inspection done anyway and then panicked after finding a flaw. It may not have been a major issue, but it turns out to be the final straw.

“They walk or still try to negotiate and the property goes back on the market,” Christman said. “It is frustrating and it makes my job harder. There are a lot of crazy scenarios out there.”
However, there is so much pent-up demand – and so few listings – that another buyer still will step right in and sometimes even agree to pay more.

“Sometimes you will get as good a buyer or better,” he noted.
James Gulden, an agent in Redfin’s Boston office, has seen this kind of churn happen as well.
In one case, a buyer he is working with got another crack at a house in East Boston because the previous buyer who put the property under contract backed out.

“It was a first-time buyer – they got cold feet after the inspection happened,” Gulden said. “It was a culmination of things and they just got overwhelmed.”

So Much For Selling
But it’s not just buyers who are having second thoughts – sellers are as well. Sellers who are trying to move up to a bigger house or a town with better schools are also finding themselves in a couple of common binds.

Maybe they’ve found a buyer for their home, but can’t find, or nail down an agreement, for their next home, so they have to pull the plug on the deal. Or they are ready to buy that next home, but the buyer for their home pulls out, forcing them to cancel their plans.

However, if just one buyer or seller pulls out, it can trigger a chain reaction, causing other sales to fall through, especially in today’s tightly-wound, inventory-starved market.

You see, this isn’t a story about individual miscalculations or misbehavior, but rather about larger, impersonal trends that are making life complicated – and in some cases downright miserable – for thousands of Bay Staters trying to conduct one of the oldest business transactions around.

And the culprit here is the chronic shortage of homes for sale, especially booming Greater Boston, where surging bio-tech and high-tech sectors, along with the burgeoning university and hospital sectors, have created growing demand for housing.

Decades of overregulation on the local level of new residential development – driven by inbred, NIMBY attitudes – have pushed new home and condo construction to anemic levels.

Just 20,622 homes were on the market in Massachusetts in May, about half the number in any typical month a decade ago before the real estate crash, and down 17 percent from May 2014.

The shortage, in turn, has created a vicious cycle, with many would-be sellers opting not to put their castles up for sale out of fear they won’t be able to find another home to buy, leading to further drops in inventory.

Certainly, there is no political will right now on Beacon Hill to make the tough changes necessary to tear down all those pernicious local barriers to new home and condo construction.

Frankly, we are in quite a mess. And it’s anyone’s guess right now how we get out of it. So brace yourself for more churn and more pending sales that go south.