Buyers backing out of deals in record numbers as market shifts
Upward of 56,000 home purchase contracts — nearly 15% of all such contracts from June — were canceled, a new report found, largely due to affordability issues.
Key points:
- Redfin reported this week that home contract cancellations are back on the rise and hit the highest level for any June on record.
- “The monthly costs associated with buying a home today are just too high to rationalize not getting everything on their must-have list,” one agent said.
- The uptick in cancellations came as more homes sit on the market longer.
It's still too soon to say the housing market has shifted from a sellers market to a buyers market, but it is moving toward what some experts say is a more balanced market as inventory grows.
Another indicator that sellers may be losing the upper hand? An increasing number of buyers backing out of contracts. According to a new Redfin report, June tallied a significant number of canceled deals, representing 15% of the homes that went under contract during the month.
More buyers are backing out
According to the Redfin report, roughly 56,000 home purchase contracts were canceled last month, which Redfin says is more than any other June on record. And the main issue, Redfin researchers and agents suggest, is housing affordability and the steep costs to purchase.
"Buyers are getting more and more selective," Redfin agent Julie Zubiate said in the report. "They're backing out due to minor issues because the monthly costs associated with buying a home today are just too high to rationalize not getting everything on their must-have list."
Home contract cancellations were most prevalent in Florida, particularly in Orlando, where 900 deals were dropped, followed by Jacksonville and Tampa. Roughly 20% of the home purchase contracts in Las Vegas and San Antonio were also canceled last month.
Financing challenges behind some cancellations
Sellers in the Mid-Atlantic region are also seeing deals fizzle out. Bright MLS reported this week that nearly 14% of June contracts fell through specifically due to challenges with buyer financing. Agents also reported to Bright that a lack of affordable options is the number one reason their clients pause their home search.
"With mortgage rates hovering around 7% and home prices continuing to rise, financing is a growing challenge for buyers, and this is beginning to impact a buyer's ability to make it across the finish line," said Lisa Sturtevant, Bright MLS chief economist.
Despite the uptick in contract cancellations, Bright researchers say sellers typically have a fallback in these cases. In June, sellers received an average of three offers on their home, and they appear to be happy with the price they're getting at closing. Buyers are also finding more inventory hitting the market, which could potentially sway some toward continuing their search.
Days on market way up from a year ago
As inventory makes meaningful strides, the homes that are already listed for sale are sitting on the market longer. In a separate Redfin report, researchers said nearly 65% of homes listed for sale in June had been on the market for 30 days or longer. That's up roughly 60% from the same period a year ago and marks the largest annual increase in a year, based on Redfin data.
Once again, the culprit is affordability and high borrowing costs, researchers say, but agents also point out that sellers have become stubborn after a long housing bull run.
"Overall, the market is fairly stagnant," remarked Shay Stein, a Redfin agent in Las Vegas. "A lot of sellers are willing to let their home sit on the market until they get the price they want, and a lot of buyers aren't willing to pay sky-high prices when mortgage rates are still high. My advice to serious sellers is to price fairly and make cosmetic repairs before listing."