Buyer Cancellations Hit All-Time High (Perfect Buying Signal?)

0:00Successfully investing in real estate in today's day and age requires staying on top of the most recent trends in the industry. Because deals are coming, opportunities are there, but it takes a savvy investor to take advantage of it. Today, I'm sharing three new trends that you need to be aware of.

0:23Hey everyone, welcome to On The Market. I'm Dave Meyer, head of real estate investing at BiggerPockets. And today we're going to be covering three big emerging trends that personally I'm following. So I'll fill you in on what is actually happening. And I'll also share with all of you what it means for investors and those of us who work in the industry. In today's episode, we're going to first discuss how prices are rising, kind of. They're also kind of falling and we'll get into some of the nuances with home prices. Secondly, we'll talk about new construction and how weaknesses in that entire segment is spreading and what it means for the average investor.

1:05And third, we'll talk about a big shift that's going on with contracts, specifically cancellations for pending sales, and how you can directly benefit from some of the changes that are going on here. Let's get into it. First and foremost, we're talking about prices. And we are in this weird stage in the housing market where it is not so easy to say, are prices going up or are they declining? When you look at things nationally, of course, they're going to be different from what they are regionally. And even when you look from one data provider to another, some of them might say prices are going up and some of them are going down.

1:43But just in the last week, a lot of major media outlets were covering a headline that national median home prices for existing home sales in June rose to their highest level on record, which is$435 ,300. $300. That's the highest on record going back to 1998. Not super unexpected because prices generally go up, but it represents a 2 % increase in prices from a year earlier, which is a lot slower than it has been. And that's something we're going to talk about, but is still relatively close to the pace of inflation. And that is really meaningful. I know real estate is local, but even on a national level, the fact that home prices are still going up year over year, three and a half years into this interest rate tightening cycle, into a year or so of increasing inventory, the fact that prices are still going up during that time, I think is extremely notable and shows the resilience of the US housing market.

2:48So it does beg the question, how does this even happen, right? Because so many people have said there's going to be declines or a crash because of interest rates or something else that's going on in the economy. But hopefully, if you are a frequent listener of this show, you can already answer this for yourself. The answer comes down to inventory. Even though the number of new listings on the market, even though active inventory has been climbing for the last year or so, it's just still too low. There is still more demand on a national level than there is inventory. We are still below pre-pandemic inventory levels.

3:27And this is a fun trivia question for huge real estate data nerds out there, but most people think that demand has dropped off in the last year. That is actually not true. When you look at mortgage purchase applications, they're actually up from a year before. And so Even though inventory has been climbing, some of that is offset by increasing demand. And the scales just haven't balanced. There was so much more demand than supply. Even though things are moving back towards normal, we still have a ways to go. Not that long, because clearly at 2%, but there's still a little bit of a ways to go before we reached a balanced market.

4:04Now, of course, everything that I have said so far is on a national level. And that is up. But as I said at the beginning, right, home prices are up kind of because more and more markets are now starting to see declines. We're just basically seeing the market split more and more into some that are performing and some that are declining. Just as an example, there's some data that examines of the nation's 300 largest housing markets. So these are big cities across the country. Of those 300, how many of them are seeing price corrections? And this trend is very, very telling about what might happen for prices for the rest of the year.

4:46In January, at the beginning of the year, there was 31 of those 300 markets in correction, so about 10 % of them. Then, when you went to February, it increased from 31 to 42. By March, it was already up to 60. By April, it jumped again to 80 of those markets. In May, it was 96. and as of June, that is the last month we have data for. I'm recording this towards the end of July, but this data usually lags a month. So as of June 2025, 110, so more than one third of all of the major housing markets in the United States are seeing a decline. Now, the scale of these declines really does matter. We should dig into that because some of them are seeing what I would call borderline crash situations where others are down, you know, half a percent.

5:38So there's a really big scale. On the sort of scary, full-blown crash end of the spectrum are mostly markets in Florida, probably not surprising to anyone who follows this stuff, but Punta Gorda has the biggest year-over-year declines, dropping 12 % in just one year. That is a huge decline. That is a crash, in my opinion. We also have other markets in Florida that are bordering on that territory, Cape Coral, Fort Myers, that it's down almost 10%. We have Northport, Sarasota, and Braderton is at 8.5%. Naples is at 7%. Then we, to round out the top five or bottom five, I guess you would say, Austin, Texas is still at negative 6%.

6:20That's after years of declining. Then we see Tampa. We see Vero Beach. Then it drops to Hawaii. So these are serious declines, right? If you see a single year decline of 6%, 7%, 8%, that is worrisome. And from all accounts, especially in Florida, these are going to get worse. Now, other markets, you know, if you look at Salem, Oregon, yeah, it's counted in that 110 markets that are declining, but it's literally 0.01 % decline. So it's basically flat. A lot of the areas that are seeing declines outside of the Sunbelt or the Gulf Coast regions are pretty mild. So you look at Nashville, for example, big market in a decline.

7:01The decline, though, 0.015%. I'm not really worried about that. To me, that is flat. Same with Birmingham, Alabama. In Seattle, here where I live, it's 0.4 % down. So these things aren't super concerning to me. But the fact that more and more markets keep getting added to this list, we went from one-tenth of all markets to now one-third of all markets, just says to me a couple of things. First and foremost, you have to be careful in almost every market right now, Even the ones that are appreciating still, I would expect in almost every one of those markets, the appreciation rate to start to go down.

7:39So if it grew 6 % last year, it probably will still grow in the next year, but do not assume the same rates of appreciation that we've seen for the last couple of years. I would personally haircut most of these things. And I would think about maybe underwriting even a strong market to a lower appreciation rate, like two to maybe 3%. I would personally not advocate underwriting any market for above average long-term appreciation. The long-term appreciation rate in the US is about 3.4%. That's kind of the highest I would go even and only for a super strong market. The markets I operate in, I want ones that are going to appreciate, but I might assume one to 2 % appreciation even in markets that are growing today.

8:24So that's the number one thing. The second thing, and this is just more psychological than it is tactical, but I do think there's an increasing chance, I've been saying this for, I don't know, three, four, five months now, that there is going to be a correction in home prices on a national level. And the reason I say this is psychological is because it doesn't really change what's going on in your individual market. That obviously depends on local dynamics, but it will impact what you read about on the news. It will probably impact what your friends or your family members say to you about buying real estate.

8:59And I think we should all just sort of be prepared for that because home prices are declining in a lot of markets. And as investors, we have to recognize that that is opportunity and risk. But I think a lot of people who are just more casual observers of the housing market are just going to only see the risk part of that. and for you as an investor, if you wanna be active in the market, you have to sort of see through some of that noise that we're gonna hear in the media. That's why we have a show like On the Market to sort of cut through that noise and talk about it but I do think it's something to be prepared for.

9:33We do need to take a quick break but when we get back, we're gonna talk about construction and I know not everyone listening is into new construction but this too has big impacts on regular investors. We'll be right back. Most deals don't fall apart because of the numbers. They fall apart because of the financing. You find a property that cash flows. The deal makes sense. But then the lender looks at your personal income, your tax returns, your debt-to-income ratio, and suddenly the deal doesn't qualify. That's the disconnect. Because as investors, we're not buying based on our W-2. We're buying based on the asset.

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12:56welcome back to on the market i'm dave meyer here talking about three important trends you all need to be paying attention to our first story today was about prices but now we're going to move on to new construction because i should note this but all of the prices that i was talking about earlier are for what's quote unquote known as existing homes these are homes that have been bought and sold before, not new construction. In our second trend here that we're going to be looking at, we're going to be looking at the flip side of the equation and see what's going on there because some people might be interested in buying new construction, but even if you're not, some of the stuff going on here can spill into the existing home market, which we're going to talk about as well.

13:37So the big headline is that new construction is pretty weak. When we look at the data that we got from June, building permits declined four and a half percent year over year, which might not sound like a lot, but it is actually a pretty significant decline. Permits are basically a lead indicator. How many people are applying to build new homes? We have this other metric called completions, which is basically how many homes actually get finished and put up for sale on the market. Completions were actually down 24 % year over year on an annualized basis, which is a massive decline from where we were in June 2024.

14:16Now, what's interesting here is that some of the data for new construction is aggregated between multifamily and single family housing. If you listen to the show, you know that multifamily housing, new construction has been really low. There's been an oversupply in that market. The pendulum has swung back in the other direction, and there's been relatively low construction there for a couple of years now. But what's notable and the reason I'm bringing this up today is that we are seeing new declines in single family housing. Permits just for single families went down 4 % and starts went down 5 % and completions were down 12.5 % just for the single family segment.

14:57And that's really notable because a lot of the headlines you see about construction over the last couple of years have really been because multifamily is down so much that takes the total unit countdown. And, you know, it's just a different industry. But this weakness is now spreading to single family homes. I was reading an article on Realtor.com and their chief economist, Danielle Hale, she wrote that, quote, these lows in single family construction come as nearly two in five builders. So 40 % of builders reported making price cuts in June, underscoring the price sensitivity of today's home shopper.

15:35So this quote is really illuminating because it tells us why, and it always comes down to this, why are we losing construction? Well, builders don't have a lot of confidence that they are going to be able to sell their finished products, whether six, nine, a year, two years down the line from now, at the prices that they need to get to earn the profit they want, or to take on the risk of doing a new construction project, which is really relatively risky. And so in a way, what we're seeing with permitting and all this is really not that surprising because we've seen a drop in builder sentiment for the last couple of months.

16:11And this is a really important lead indicator for what's going on. And they have this by region two, which is going to be a trick all of you investors can take out and use because you are going to want to understand where construction is actually happening, if it's happening in your area, the markets that you're operating in. And I'll share with you some of that in just a little bit. But we're seeing at a highest level first is that builder sentiment overall has dropped down to a level of 33. Now that number probably makes no sense to you at all right now, but I'll explain it to you. It's what's known as an index and basically anything 50, the level 50 is basically neutral, right?

16:49It's kind of like a five out of 10. And so if builder confidence or builder sentiment is 50, it means about half the builders are feeling good, half are not feeling good. Right now at a level of 33, that means about two out of every three builders are not feeling pretty good about the market. And only one out of three is feeling good. And it is notable, you know, slightly notable that the number jumped up a little bit from June to July. It went from 32 to 33, but this is way lower than where we started at the beginning of the year. In January, we're at 47, so close to neutral, which is pretty good given where interest rates are, right?

17:28But we've seen that drop all the way down to 33%. So we've seen a very pronounced souring of sentiment in the builder industry. And again, this is happening now in a more pronounced way on the single family level. Just as an example, at the beginning of of the year, we saw the builder sentiment level for single families alone at 59. That's dropped down to 43%. So basically went from 60 % confidence to 43 % confidence in just a couple of months. That is a pretty dramatic. I've watched these indexes. They don't move that much that quickly. And so seeing it drop down that much is a significant finding.

18:09And that's why we're talking about it. Now, if we want to, we can dig a little bit deeper and say, why is builder sentiment deteriorating, right? We can sort of follow the thread here. Construction is down. Why? Builder sentiment's down. Why is builder sentiment down? Well, we have some data on that too. The main reason is that prospective buyer traffic is declining. We've talked about this, but actually overall mortgage purchase applications are doing okay. But it seems like in a new construction segment, we're seeing a pullback in demand. There is another index, same way it's measured. As I said before, 50 is neutral.

18:46So traffic for prospective buyers, when we started the year, was at a 32. So already not great, but 32, it's okay. Now it's dropped down to 20. 20 is not a good number. That means only one out of five builders on average is feeling like they're getting good traffic from prospective buyers. No wonder they're stopping building, right? If you stop seeing people showing up to buy the homes that you already have that are going to sit in your inventory, would you keep building? I don't think so. So that's number one thing that's happening. The second thing is just softer pricing. If there's less people coming in the door, you're going to have to lower your prices.

19:23And for builders, price cuts are really used as a last resort incentive. They do not want to lower their home prices because it resets their comps. Just imagine if you were building 20 or 30 homes in the same subdivision and you lower the price for one, well, you sure bet that every other buyer who comes in the market is going to want that lower price. So they're willing to do everything, including rate buy downs and seller credits and all these other things to avoid dropping prices. But even still, they're having to drop prices. Like I said earlier, 40 % of home builders are now reporting that they are cutting prices and they're basically turning to their incentive of last resort.

20:05And so this is just, again, why we're probably going to see single-family home construction decline for the foreseeable future. Now, of course, there are regional trends that we should be talking about. When you look at builder confidence in general, it's actually still pretty good in the Northeast and the Midwest. So in the Midwest, for example, you all know I am a shill for the Midwest, but builder confidence was at 44 in January, and it is now 44 in the Midwest. slow and steady in the Midwest, always the same, which I'm totally fine with. So that hasn't changed. In the Northeast, it started super high at 65.

20:41It's now down to 48. It's still the highest of any region, but it's come down pretty considerably. Whereas when we look at the South, it started at 47, not bad, but that's dropped all the way down to 29%. And when we look at the West, that started at 42 % and dropped down to 25. And so this is really helpful in understanding and forecasting what's going on here because we are seeing this oversupply in the South. That's a big reason why prices are declining, right? If you look at Florida or Texas or some of these markets, they've built a lot. So seeing builders pull back in these markets is not only logical, it's kind of to be expected.

21:19This is a normal housing cycle, right? When they build a little too much, they get a little too aggressive, maybe a little too confident. Then the buyers pull back and they say, oh, whoa, whoa, we've built way too much. time for us to pull back on construction. And we're seeing that. So it is not surprising or a further sign of decline in the South that there's less building there. That's actually a sign that they're trying to find a bottom, right? That there's more likely to find a bottom in those markets because we won't be flooding those markets with new construction. So if you work and live in those markets and you're concerned about prices declining, you actually probably want to see a slowdown in new home construction in those markets.

21:57So that's a really good indicator for everyone to watch. Meanwhile, I think when you look at places like the Midwest and the Northeast, you can expect a continuation of what we've been seeing. Now, those markets have not traditionally been overbuilt. They don't build as much. And so we'll probably still see more inventory coming online. But it's not like all of a sudden builders are flocking to the Northeast and Midwest to start building in mass huge tract homes and subdivisions like they do in Florida. Instead, I find this comforting as an investor in the Midwest is that I think that it's probably going to just keep going slow and steady the way that it has been historically.

22:35Now, you're going to want to look at individual markets because obviously the Midwest or the South, those are big regions. But generally speaking, that's what's going on. So again, this is why I think new construction is something everyone needs to be keeping an eye on. Over the last couple of years, we've been suggesting to you on this show to look at multifamily permits to see where it's getting oversupplied. But given these trends, I think looking at single family permits, this is stuff you can find for free. You can go on the Fred website and just Google like new building permits, Dallas, Texas, and you'll get this for free.

23:09And just look at what's going on in your market because it can help you inform, sort of informs your buying strategy. Like are prices going to keep declining? Are new construction or maybe they're becoming really good value in your market. In Dallas, that's actually true in a lot of cases. So it just helps you identify the type of asset you could be looking for and where prices are likely to go. So definitely check that out. All right, that was our second trend that you need to keep an eye on. Next, we're gonna talk about how we have reached a all-time high for contract cancellations in June. And this too has huge implications on how you adjust your own investing strategy.

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