Home Buyers Cancelling Contracts

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Home buyers are increasingly canceling home purchase contracts citing a slowing housing market, and rising mortgage rates as biggest factors

Approximately 60,000 home purchase agreements were canceled last month by homebuyers, about 14.9 percent of homes that went under contract that month, according to a report from Redfin.

The cancellation rate is the highest percentage since Redfin began collecting the data in 2017, excluding March and April 2020, the first two months of the pandemic.

The percentage of canceled contracts compared to homes put under contract is up from 12.7 percent in May and up from 11.2 percent year-over-year.

Prospective homebuyers are canceling contracts for two primary reasons:

  • Some are exercising contingency clauses, which were waived by many buyers to increase their offer’s chances of being accepted when the market was hotter.
  • Others are backing out because of rising mortgage rate. In mid-June, the average 30-year fixed-rate loan flew past 6 percent, significantly higher than it was at the beginning of the year, when it was at an average of 3.22 percent.

Housing prices are still rising but less than they were, and signed contracts indicate the number of sales will drop in the coming months.

The housing market has cooled in recent weeks as the Federal Reserve has boosted interest rates in an effort to quell four decade high consumer price index (CPI) inflation. That has given house hunters more freedom to seek concessions from home sellers, but higher rates also make housing less affordable for average Americans.

References:

  1. https://therealdeal.com/2022/07/11/deal-or-no-deal-home-buyers-increasingly-canceling-contracts/amp/
  2. https://www.redfin.com/news/home-purchases-fall-through-2022/
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