Facing red-hot inflation and higher mortgage rates, some homebuyers are now backing out of deals — either to renegotiate them or because they can’t afford the mortgage anymore. In June, nationwide, 60,000 home-purchase agreements fell through, or ~15% of homes that went under contract that month, according to new data.
The data, released by Redfin, indicates that figure (14.9%, to be precise) as the highest percentage of home sale cancellations on record excepting March and April 2020, when the housing market halted due to the onset of the coronavirus pandemic. It is also a significant increase compared to the 11.2% of canceled deals in June of 2021.
“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 press release. “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.”
Last week, mortgage rates decreased for the second consecutive week. However, perhaps given fears of an economic slowdown, mortgage applications decreased as well — 5.4% from one week earlier — according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 1. Mortgage rates have increased sharply in 2022, but have also fallen over the past two weeks, with the 30-year fixed-rate currently resting around 5.75%, per CNBC.
“Rising mortgage rates are also forcing some buyers to cancel home purchases. 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,” Marr added.
CNBC reports that homebuilders are also seeing higher cancellation rates. In May, cancellation rates concerning the building of new homes soared to 9.3% in a survey of builders conducted by John Burns Real Estate Consulting (JBREC). This figure can be compared to a cancellation rate (pertaining to new builds) of 6.6% in May of 2021.
“Buyer’s remorse and cancellations shortly after contract are increasing. Builders state buyers are nervous about a potential recession, struggling to get comfortable with higher payments, or expecting home prices to decline,” Jody Kahn, senior vice president with JBREC, told CNBC, adding that in her mid-June survey she continued to see cancellations on the rise.
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