Homebuyers are backing out of property purchase deals at a level not seen since the beginning of the COVID-19 pandemic, according to data from Redfin RDFN.
What Happened: Approximately 60,000 home-purchase agreements were terminated during June, which is the equivalent of 14.9% of homes that went under contract that month, Redfin reported. That share is up from 12.7% in May and from 11.2% in June 2021. It is also the highest percentage since Redfin began tracking this data in 2017, with the exception of March and April 2020 when the pandemic took root in the U.S.
"The slowdown in housing-market competition is giving homebuyers room to negotiate, which is one reason more of them are backing out of deals,” said Redfin Deputy Chief Economist Taylor Marr. “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."
This year’s spike in mortgage rates is “also forcing some buyers to cancel home purchases," Marr noted.
"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," he added.
What Else Happened: According to Redfin, five of the 10 housing markets that cooled the fastest this year are in northern California — San Jose, Oakland, San Francisco, Sacramento and Stockton. Three of the five are located in the Bay Area. All 10 of the housing markets cooling fastest are in the American West, with the increase in mortgage rates knocking many potential buyers out of the market.
“The housing market has changed drastically in the last month because higher rates make homes even more expensive than they used to be,” said San Francisco Redfin agent Joanna Rose in a press release. “At the same time, fewer people can afford pricey homes because of the volatile stock market. In the early spring, every home was selling over its asking price with multiple bids — then the number of people attending open houses dropped from 20 to two, and now some homes are sitting on the market for over a month and selling for under asking price. Supply is starting to pile up.”
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