About 63,000 home-purchase agreements fell through in July, 16.1 percent of homes that went under contract that month, according to a Redfin report. That’s the highest percentage on record apart from March and April 2020, when the onset of the pandemic brought the housing market to a near standstill. It’s up from a revised rate of 15 percent in June and 12.5 percent a year ago.
The housing market is slowing as higher mortgage rates sideline many prospective homebuyers. With competition declining, house hunters still in the market are enjoying newfound bargaining power and are more likely to utilize contract contingencies that allow them to back out without financial penalty if something goes wrong.
“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,” Jacksonville, Fla., Redfin real estate agent Heather Kruayai said in a release. “Buyers are also skittish because they’re afraid a potential recession could cause home prices to drop. They don’t want to end up in a situation where they purchase a home and it’s worth $200,000 less in two years, so some are opting to wait in hopes of buying when prices are lower.”
Jacksonville Redfin agent Alexis Malin warns there’s no guarantee buyers will be able to find better deals in the future. Annual home-price growth has started to slow, to 8 percent from 17 percent a year ago, but prices are still on the rise and Redfin economists don’t expect them to crash.
“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.”
Some buyers may also be backing out due to 5 percent mortgage rates. Those who started their search months ago, when rates were closer to 3 percent, may find the type of home they wanted before is now out of budget since monthly mortgage payments have soared nearly 40 percent year-over-year.
“Home-purchase cancellations may begin to taper off as sellers get used to a slower-paced market,” Redfin Deputy Chief Economist Taylor Marr said. “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.”
In Jacksonville, roughly 800 home-purchase agreements were called off in July, 29.3 percent of homes that went under contract that month. That’s the highest percentage among the metro areas Redfin analyzed. Next came Las Vegas (27.4 percent), Lakeland, Fla. (26.2 percent), New Orleans (25.9 percent), San Antonio (25 percent), Orlando, Fla. (24.5 percent), Palm Bay, Fla. (24.5 percent), Deltona, Fla. (24 percent), Atlanta (23.7 percent) and Pensacola, Fla. (23.6 percent).
Newark, N.J., had the lowest rate of deal cancellations. About 75 home-purchase agreements fell through in July, equal to 2.7 percent of homes that went under contract that month. It was followed by Omaha, Neb. (4.9 percent), Nassau County, N.Y. (5.9 percent), Rochester, N.Y. (6.9 percent) and New York (7.1 percent).