The rate of fall-out of signed transactions that don’t actually close is rising rapidly; i.e. a Buyer made an offer on a property and the Seller accepted the offer (and the transaction was marked Pending in the MLS), but the transaction never gets closed, the Seller never gets his or her money, and the Buyer never gets possession of the property.  Take a look at the Fall-Out Ratio chart below for the Seattle/Bellevue/King County area:.  

Historically the fall-out rate has been well under 10%, but then in early 2008 the fall-out rate started climbing like a rocket.  Recall that we had the mortgage market meltdown in late 2007, and lenders started dramatically tightening their lending practices.  Then we had the larger financial and business crash in late 2008, and more people started losing their jobs - and the other 90% got nervous.  It was also in late 2008 that we started seeing a lot more short sales in our Seattle/Bellevue area.  In a short sale, the insolvent seller is trying to avoid foreclosure by selling the property and getting the lender to accept less than is owed on it.  That lender approval process is often slow and uncertain, and it certainly is contributing to this rise in the Fall-Out Ratio. (more on Short Sales)  Short sales may be 20% or more of our current sales activity, and those delays may also be a major contributor to why the average Days-on-Market measure isn’t dropping in concert with Months Supply.  Other contributors to the fall-out rate would include failure to reach agreement on inspection, and failure to complete financing.  I wouldn’t expect the inspection issue to have changed much, but the financing process has certainly gotten tougher.