Homebuyers are backing out of sales at the highest rate since the start of the COVID-19 pandemic, a new report from Redfin says.
Nationwide, about 60,000 home-purchase agreements fell through in June, which is equal to 14.9% of homes that went under contract that same month, according to Redfin. This is the highest percentage on record, the report said, excluding March and April 2020, when the housing market slowed immensely after the onset of the pandemic. Before the pandemic, the highest rate of cancellations was about 11%, NewsNation business contributor and New York Post reporter Lydia Moynihan said.
Redfin partly attributes the contract cancellations to a slowing housing market that gives buyers more room to negotiate deals.
“Buyers are increasingly keeping rather than waiving inspection and appraisal contingencies,” Redfin Deputy Chief Economist Taylor Marr said. “That gives them the flexibility to call the deal off if issues arise during the homebuying process.”
People are also being forced to cancel contracts because they can’t afford higher mortgage rates. The New York Times reported that the Federal Reserve’s decision to raise interest rates in an attempt to contain rising inflation has pushed up mortgage costs and pushed out many first-time buyers.
“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,” Marr said.
CNBC said Lennar, which is one of the United States’ largest homebuilders, had a cancellation rate that increased sequentially to 11.8%, although that is still below its long-term historical average. To make up for falling demand due to these rising interest rates, Lennar has reported increasing its incentives, CNBC said.
Moynihan said all this underscores how nervous people are about making a big purchase these days.
“They don’t know if we’re going to go into a recession. They’re worried they could lose their jobs. There are just too many question marks to make this kind of a commitment,” she said. “People are paring back on little purchases. So how much more are they going to pare back on big purchases?”
Moynihan expects mortgage rates to keep going up, especially as the federal reserve considers another interest rate hike. The New York Times reports that the Fed is steering toward another three-quarter-point increase.