A combination of rising interest rates and picky buyers contributed to nearly 60,000 home-purchase agreements falling through in June.
The total represents 14.9% of homes that went under contract that month and is the highest percentage of homebuyers bailing contracts on record, excluding March and April 2020 at the peak of the pandemic.
Seattle-based real estate brokerage Redfin Corp, (NASDAQ:RDFN) released the numbers after analyzing multiple listing service (MLS) data from 2017. The 14.9% of buyers bailing on offers compares with 12.7% in May this year and 11.2% at the same point in 2021.
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Buyers are backing out for several reasons. Rising mortgage rates are causing some not to qualify for loans, and home inspections that failed to pass muster with the buyer give them a way out.
“The slowdown in housing-market competition is giving homebuyers room to negotiate, which is one reason more of them are backing out of deals,” Redfin Deputy Chief Economist Taylor Marr said. “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.”
Erin Sykes, chief economist for Nest Seekers International, a real estate brokerage best known nationally for its participation in Netflix Inc.’s (NASDAQ:NFLX) “Million Dollar Beach House,” told CNET it might be just related to picky house shoppers.
“They may be pulling out because of inspection contingencies, or they may think they can cancel the deal now and then get a better deal on this property or another in the coming months,” she said. “But we don’t know how much the market is going to change.”
With the Federal Reserve boosting interest rates and more increases on the horizon, the formerly blazing-hot housing market has cooled down, giving buyers more liberties to ask for more concessions.
“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,” Marr added.
But pulling an offer could be expensive. Not Elon Musk expensive, but still more than some homebuyers can stomach financially. Depending on the state, losing your earnest money deposit is possible if you don’t have the legal grounds to bail.
Warm weather locations such as Las Vegas, Florida, Arizona, Texas and Louisiana have been hardest hit with pending sales that fell out of contract by well over 20%. Metro areas seeing lower shares of homes falling out of contract include Minneapolis, New York City and San Francisco.
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