Pending home sales are being canceled at a higher rate as prospective homebuyers grapple with affordability issues and use the shifting market conditions to increase their bargaining power, according to a Redfin report released on Tuesday.
The analysis found that roughly 63,000 deal under contract fell through in July nationwide. This is equivalent to 16.1% of the 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 15% in June and 12.5% a year prior.
Redfin attributes the increased share of homes falling out of contract to higher mortgage rates, which have caused monthly mortgage payments to rise nearly 40% year over year, sidelining some prospective homebuyers and the hastening the decline in homebuyer competition, which has given buyers in some metros a bit of bargaining power. In addition, as the market has cooled, buyers are again including contingencies in their offers, making them more likely to back out of a deal if something comes up on the home inspection.
“Homes are sitting on the market longer now, so buyers realize they have more options and more room to negotiate. They’re asking for repairs, concessions and contingencies, and if sellers say no, they’re backing out and moving on because they’re confident they can find something better,” Heather Kruayai, a Jacksonville, Florida-based Redfin agent, said in a statement.
Kruayai’s market of Jacksonville has the highest number of purchase agreement called off out of the 93 metro areas in the Redfin analysis. In July, roughly 800 agreements or 29.3% of homes that went under contract in Jacksonville fell through.
Jacksonville was joined by five other Florida metros, Lackland (26.2%), Orlando (24.5%), Palm Bay (24.5%), Deltona (24%), and Pensacola (23.6%), as well as Las Vegas (27.4%), New Orleans (25.9%), San Antonio (25%), and Atlanta (23.7%) in the top-10.
Redfin attributes the high share of called off contracts in Florida to the state’s high price growth, which has caused competition to slow even further as mortgage rates have risen.
Another Jacksonville-based agent Alexis Malin, said that she has seen some homebuyers back out of deals or pause their home search, as they believe home prices will drop back down, but she notes that this does not look likely.
“Some buyers who are backing out of deals have this mindset that the market is crashing and they’ll be able to get a home for $100,000 less in six months. That’s not necessarily the case,” Malin said. “Homes in many parts of Florida are still selling for a pretty penny, so I warn my buyers that the grass might not actually be greener on the other side.”
At the other end of the spectrum, Newark, New Jersey had the lowest rate of deal cancellations, with about 75 agreements falling rough in July, representing 2.7% of all homes that went under contract. Omaha, Nebraska (4.9%), Nassau County, New York (5.9%), Rochester, New York (6.9%) and New York, New York (7.1%) all had the next lowest cancellation rates.
Agents say they are advising sellers to make sure their homes are in top condition and stand out from any competition, as it is now more likely that buyers may back out of a deal.
“Home-purchase cancellations may begin to taper off as sellers get used to a slower-paced market,” Taylor Marr, Redfin’s deputy chief economist, said in a statement. “Sellers have already begun to lower their prices after putting their homes on the market. They’ll likely start pricing their properties lower from the get-go and become increasingly open to negotiations.”