People are cancelling home deals at the highest rate in a year, as high mortgage rates give buyers cold feet.
Deal cancellations notched 16.6% in September according to Redfin, a new high since October last year.
The housing market is tight, but buyers “hold all the cards,” Redfin said.
A cocktail of high mortgage rates and high home prices has driven potential buyers to back out of deals at the highest rate in a year.
Monthly pending home sales that fell out of a contract in September notched 16.7%, the highest since October 2022 when mortgage rates surpassed 7%.
“Buyers are extra cautious right now. They want to make sure they’re getting a good deal given how much mortgage payments have gone up, and when they don’t feel like they’re getting a good deal, they’re backing out,” said Heather Kruayai, a Redfin Premier Agent in Jacksonville, Florida.
The market right now is not very kind to buyers. Mortgage rates just pierced through 8% and the median home price is around $412,081. First-time buyers are particularly constrained, but current homeowners looking to move also have a tough pill to swallow, as many will have to give up a lower interest rate they locked in years ago before mortgage rates shot up.
Buyers, in short, are looking for the best possible deal they can get right now, making it more likely that they back out if issues crop up.
“Transactions are also falling apart due to skyrocketing insurance premiums and disagreements between buyers and sellers over necessary repairs,” Kruayai said. “Overall, buyers hold a lot of the cards right now, and sellers are having to give out more concessions to close the deal.”
Sellers may be more incentivized to close because with mortgage rates so high, some fear that prices will ultimately have to come down in the near-term.
“A lot of Americans are sitting on piles of money in their homes, and some are opting to cash out even if it means giving up their low mortgage rate; they’re worried there’s a possibility home prices will fall if rates remain elevated. We expect rates to remain high for the foreseeable future,” said Redfin’s Chief Economist, Daryl Fairweather. “But we also expect prices to stay high into next year. Housing supply is so strained that even a small uptick in listings lures buyers off the sidelines, bolstering sales.”
Of the 50 most populous metro areas analyzed by Redfin, cities in Florida were hit hardest by rising deal cancellations in September. Jacksonville, Orlando, Tampa, Fort Lauderdale, and Miami all saw deal cancellations above 20% of pending home sales. At the top of the charts was Atlanta, Georgia with 24.4% home deals that fell through.
In Rochester, New York, 71.8% of homes that went under contract did so within two weeks — the fastest period recorded last month.
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