Homebuyers Are Backing Out of Deals at a Record Pace
June is generally a peak month for home sales, but you wouldn’t know it based on the record-high rate of contract cancellations last month.
According to a recent report from real estate brokerage Redfin, 56,000 purchase agreements were canceled last month, or about 15% of all pending sales transactions. This is the highest cancellation rate for June since Redfin started tracking the metric in 2017. (The all-time high percentage of voided contacts occurred in March 2020, when pandemic quarantines went into effect and homebuyers canceled 17.6% of all sales contracts.)
“We’re seeing nightmare scenarios where deals are getting canceled at the last minute for the most minute reasons,” Rafael Corrales, a Redfin Premier agent in Miami, said in the report.
Buyers often back out during the inspection period when they realize how much the purchase will cost after homeowners insurance, property taxes and other fees are added to the mix.
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View RatesSome areas are seeing higher cancellation rates than others. Three of the cities with the highest percentage of voided contracts are located in Florida, which has been a hotspot for homebuyers in recent years. In Orlando, almost 21% of signed purchase agreements were scrapped — the highest rate of all. Another pandemic hotspot, Las Vegas, had a 20.2% cancellation rate in June.
Affordability challenges plague the housing market
Buyers have faced a series of challenges over the past few years that continue to plague today’s market. According to the Redfin report, home prices continue to increase, hitting an all-time high median sale price of $442,525 in June.
At the same time, mortgage rates averaged 6.92% for the month, and the typical monthly mortgage payment was up to about $2,900. For the sake of comparison, in June 2020, with mortgage rates averaging 3.16% and a median sales price of $311,300, the typical monthly payment was about $1,340.
Because the costs are so high, many buyers are opting to wait out the market, hoping for mortgage rates, home prices or both to ease. To add to the difficulties homebuyers face, the number of homes for sale is still tight, although it has been improving steadily.
Instead of overpaying for a home that isn’t a perfect fit, many would-be buyers are canceling agreements at the last minute. “They’re backing out due to minor issues because the monthly costs associated with buying a home today are just too high to rationalize not even getting everything on their must-have list,” Julie Zabiate, a Redfin Premier real estate agent working in the San Francisco Bay market, said in the report.
The silver lining to the buyer pullback
Despite what seems to be dire circumstances, prospective buyers may soon receive some relief during the summer buying season.
Current mortgage rates have fallen over the first few weeks of July and are at their lowest level since mid-March. If the overall downward trend in rate movement continues, as many housing experts anticipate, affordability will improve.
With fewer active buyers in the market, home sellers are also having to adapt. Almost 66% of all listings sat on the market for an average of 32 days last month, the highest it’s been since June 2020. More than 40% went unsold for more than 60 days. Slower sales mean that inventory, which has been extremely low over the previous few years, is slowly recovering.
Also gone are the days of bidding wars, which resulted in home sales thousands of dollars over the asking price (and helped push prices up to new highs). Price cuts are taking their place as sellers try to lure buyers back. According to Redfin, about 20% of all listed homes had a price cut, the highest percentage on record for the month of June.
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