Around the country, nearly 60,000 home-purchase agreements fell through in June according to a Redfin analysis of MLS data going back through 2017. That is equal to 14.9% of homes that went under contract that month. This is the highest percentage on record with exception to March and April of 2020, when the housing market took a big slow down due to the beginning of the pandemic. A month earlier, there were 12.7% cancellations while this time last year saw 11.2%.
Some homebuyers are backing out of deals as the housing market slows, allowing them more room to negotiate while others are being forced to back out of contracts due to higher mortgage rates that are making the homes no longer affordable.
“The slowdown in housing-market competition is giving homebuyers room to negotiate, which is one reason more of them are backing out of deals,” said Redfin Deputy Chief Economist Taylor Marr. “Buyers are increasingly keeping rather than waiving inspection and appraisal contingencies. That gives them the flexibility to call the deal off if issues arise during the homebuying process.”
Marr went on to say: “Rising mortgage rates are also forcing some buyers to cancel home purchases. 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.”
The housing market has cooled recently as the Federal Reserve boosted interest rates in an effort to thwart inflation. This has allowed potential homebuyers more freedom to seek concessions from sellers. At the same time, the higher rates also make the home less affordable. Buyers did catch a small break last month when the average 30-year fixed mortgage rate fell to 5.3%. It was the largest one-week drop since 2008.
“When mortgage rates shot up to almost 6% in June, we saw a number of buyers back out of deals,” said Lindsay Garcia, a Redfin agent in Miami. “Some had to bow out because they could no longer get a loan due to the jump in rates. Buyers are also more skittish than usual due to economic uncertainty.”
The metro area with the most pending sales to fall out of contract was Las Vegas, NV at 27.2%. Newark, NJ saw the lowest pending sales to fall out of contract– 2.6%.. In order to be included, the metro area must have had at least 1,000 pending home sales in June 2022. 102 metro areas made the list. Charlotte came in at number 76 on the list with 11.6% of pending sales falling through.