When I reported on September home sales in Chicago a few days ago I noted an apparent disconnect between the number of contracts being written and the closings that were actually taking place. The large and growing discrepancy seemed to imply that it has recently been taking longer for homes to close once they go under contract.
As promised I dug deeper into the data to get to the bottom of this and sure enough a significant number of homes are under contract for a longer period of time without closing than at the same time last year. To put it in stark perspective I looked at all the homes that went under contract in May of 2011 and 2010 and then analyzed how long it took them to close. I chose May because May 2010 was after the homebuyer tax credit deadline (therefore no urgency to close) and it has now been 5 months since the May 2011 contracts were written, which should be plenty of time for them to close.
In the table below I compare the percentage of contracts closed at different points in time for 2010 and 2011.
Sure enough, contracts written in May 2011 are taking significantly longer to close. At each point in time 7 - 8% more contracts are pending this year than last. Even after 160 days more than 10% of the contracts have not yet closed. That's huge.
Unfortunately, I can't tell you why this is happening or whether or not those contracts that have still not closed are going to fall apart. What I can tell you is that a large percentage of these pending deals seem to be sub-$200K deals and are distressed. Maybe the buyers are having problems getting their financing together.
The other thing I can tell you is that if these deals eventually do close they are going to improve the closing figures for the month in which they close. So by November and December we may start to see these delayed closings manifested in improved sales figures.