Pending home sales are being canceled at the highest rate in years as buyers reckon with a brutal housing market, according to a Redfin report released on Monday.
The analysis found that roughly 60,000 deals under contract fell through in June nationwide. This is equivalent to 14.9% of homes that went under contract that month and represents the highest percentage in Redfin’s records which go back to 2017, with the exception of March and April 2020 at the onset of the COVID-19 pandemic.
In comparison, the share of homes that fell out of contract was 12.7% in May and 11.2% in June of 2021.
Redfin attributes the increased share of homes falling out of contract to the slowdown in the market, which experts at least partially attribute to the recent rise in mortgage rates.
“Rising mortgage rates are also forcing some buyers to cancel home purchases,” Taylor Marr, Redfin’s deputy chief economist, said in a statement. “If rates were at 5% when you made an offer, but reached 5.8% by the time the deal was set to close, you may no longer be able to afford that home or you may no longer qualify for a loan.”
With the June inflation numbers coming in at a 9% year-over-year increase, experts feel that it is only a matter of time before the Federal Reserve issues another large rate hike, which will further cool the housing market.
“The accelerating inflation means there’s a lot more work for the Federal Reserve to do,” Mark Fleming, First American’s deputy chief economist, said in a statement. “Another 75-point increase in the federal funds rate is almost assured.”
However, Marr also noted that the slowdown is also giving some homebuyers more room to negotiate, possibly causing them to back out of deals.
“Buyers are increasingly keeping rather than waiving inspection and appraisal contingencies,” Marr said. “That gives them the flexibility to call the deal off if issues arise during the homebuying process.”
Of the metro areas analyzed, Las Vegas had the highest share of pending sales that fell out of contract in June at 27.2%, followed by four Florida metros, Lakeland (26.7%), Cape Coral (15.7%), Port St. Lucie (25.7%), and Jacksonville (25.3%). At the other end of the spectrum, Nassau County, New York (5.5%), San Francisco (5.5%), Omaha, Nebraska (5.3%), Rochester, New York (4.6%) and Newark, New Jersey (2.6%) had the lowest share of canceled home sales.
“When mortgage rates shot up to almost 6% in June, we saw a number of buyers back out of deals,” Lindsay Garcia, a Miami- based Redfin agent, said in a statement. “Buyers are also more skittish than usual due to economic uncertainty.”
Rick Palacios Jr., the research director for John Burns Real Estate, said buyers of new homes are canceling contracts, price cuts are becoming “fairly common” and sales have fallen in many markets.