Accelerating the housing crash

On top of the dreadful news that pending home sales tumbled 16.5% in just two months, we're now learning a lot of homes that are under contract might not get sold after all — and not because the buyer can't get financing in a suddenly-tighter credit market.

No, in a growing number of cases the problem lies with the seller.

It seems that for those homeowners on the margins — those with some but not much equity — the costs of a real estate transaction are turning into a kick in the pants.

The problem seems to start, she said, with those formerly easy-to-snatch mortgages that cover 95 or 100 percent — or more — of the purchase price.

Yep, thanks to Bubbles Greenspan's EZ Credit Emporium, more and more, the seller finds himself or herself writing a check on closing day… and in some cases, the seller just doesn't have the funds to cover it.  Chicago Tribune real estate columnist Mary Umberger hears from an understandably anonymous source:

"Our office had four sales in one week that failed to close because the seller didn't have the cash," said the real estate agent, who declined to be identified because she feared office repercussions.

Going over a settlement sheet from a recent transaction that did close, it becomes very clear why others aren't.  This home cost just under $600,000:

Reeling off a few of the line items, she notes that the seller had to cover $1,800 in title insurance, a $75 water-certification fee, nearly $900 in tax stamps to Chicago and Illinois; a $550 attorney's fee; a $40 "overnight processing" fee. Those and numerous other charges drove the closing costs to about $3,400.

And that didn't include the pro-rated property taxes for which the seller was liable and which weren't covered by the escrow account. In this case, the seller had to set aside $6,000 from the sale of the house to cover the taxes.

Then, ahem, there's the commission.

"If you're listing a house for $410,000 and the mortgage is $390,000, you've got a problem," she said, in a bit of an understatement.

Based on the 5 percent rate she says prevails among city real estate agents, a seller in her $410,000 example would pay a $20,500 commission.

Ouch.  While there aren't any numbers that pin down how often sales are falling through because the seller is strapped for cash, the agent says the trend is strong enough to change the way her office does business:

My friend said her fellow agents had been admonished by management that they should delicately wrestle their sellers' finances to the ground before matters progress too far.

"There used to be a rule of thumb that you needed to be able to set aside 10 percent of your sales price," she said. "Five percent covered the commission, and another 5 percent covered the miscellaneous fees, the cardboard boxes and the movers."

Now, in our over-leveraged age, that number seems just too tight.

"All those fees, they don't seem so big when you're looking at a $50,000 check coming your way," she said, her voice trailing away. "But when you've spent all your equity on a new car …"

Or a cruise, or a boat, or a big screen

Little wonder that the second wave of the housing tsunami is upon us.