With each passing month this year, more prospective homebuyers have been backing out of the deals they’ve struck with sellers.
Approximately 63,000 deals to purchase a home fell through in July, which was 16.1 percent of all contracts entered into that month, according to a new report from Redfin. That’s up from 15 percent the previous month, and higher than the 12.5 percent mark recorded this time last year.
The recent spike in contracts falling through has nearly reached the levels recorded in the disruptive opening weeks of the pandemic, when economic uncertainty and fears over the spread of the coronavirus spooked homebuyers and led to a wave of cancellations.
Aside from that brief period in March and April of 2020, cancellations are now at their highest levels since at least 2017, the furthest date back in Redfin’s analysis of MLS records.
As with most aspects of the ongoing slowdown in home demand, the trend appears to be influenced in part by rising mortgage rates, Redfin Deputy Chief Economist Taylor Marr said in the report.
“Home-purchase cancellations may begin to taper off as sellers get used to a slower-paced market,” 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.”
The reasons why buyers are backing out at such a high clip are varied.
In Jacksonville, Florida, buyers canceled contracts at a rate of 29 percent last month, the highest level in the nation.
Some of Alexis Malin’s buyer clients there are fearing the possibility of an impending real estate crash, and what it might mean for home prices.
“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,” the Redfin real estate agent said in the report. “That’s not necessarily the case. 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.”
But as some buyers drop out due to high mortgage rates and prices, many of the ones who remain on the market now find they have more negotiating power, Redfin agent Heather Kruayai said in the report.
“Homes are sitting on the market longer now, so buyers realize they have more options and more room to negotiate,” said Kruayai, who also works in Jacksonville. “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.”
Beyond Jacksonville, the rest of Florida was hit particularly hard, with five other metro areas ranking in the Top 10 nationally for cancellations last month.
But backouts abounded in other places as well. Las Vegas saw 27 percent of home contracts fall through in July. The greater New Orleans, San Antonio and Atlanta areas weren’t far behind.