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About 60,000 home-purchase agreements were canceled in June 2022, or about 14.9 percent of all homes that went under contract throughout the month, according to a new report released Monday by Redfin.
Such figures of canceled contracts have not been seen since early pandemic days in March and April 2020, when the number of contracts that fell through hit 17.6 percent and 16.4 percent, respectively. By contrast, 12.7 percent of contracts fell through in May 2022 and 11.2 percent fell through in June 2021.
Redfin’s analysis includes MLS data dating back to early 2017. The brokerage also pointed out in its report that homes that fall out of contract one month may have entered a contract in a different month, i.e., a property whose contract was canceled in June may have initially gone under contract in May.
“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 in a statement.
“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. Rising mortgage rates are also forcing some buyers to cancel home purchases. If rates were at 5 percent when you made an offer, but reached 5.8 percent 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.”
Agents have reported a real estate slowdown as the Federal Reserve has increased interest rates in response to inflation in recent weeks. The slower market has given buyers a bit more leverage when it comes to negotiating with sellers, but it’s also hampered affordability. Still, rates saw their largest one-week drop since 2008 last week when the average 30-year fixed rate mortgage rate dropped to 5.3 percent.
Rick Palacios Jr., director of research at John Burns Real Estate Consulting, noted on Twitter that homebuilder sentiment is responding to the slowdown as well — construction costs are finally coming down, but builder layoffs are also occurring.
June home builder sentiment and survey results are in. Top themes: 1) A lot more new home buyers cancelling. 2) Price cuts becoming fairly common. 3) Drop in demand finally cooling construction cost pressures (builder layoffs also happening). Market commentary to follow…
— Rick Palacios Jr. (@RickPalaciosJr) July 11, 2022
A monthly survey released from Zonda last week found that more than half of builders across the U.S. saw an increase in buyer cancellations in June.