Home Sales Are Being Canceled at the Highest Rate Since the Start of the Pandemic: Redfin

By Bryan Jung
Bryan Jung
Bryan Jung
Bryan S. Jung is a native and resident of New York City with a background in politics and the legal industry. He graduated from Binghamton University.
July 12, 2022 Updated: July 12, 2022

Prospective homebuyers are canceling sales and backing out of deals at the highest rate since the start of the pandemic, Redfin announced on July 11.

About 60,000 home-purchase agreements throughout the country fell through in June 2022, roughly equivalent to 14.9 percent of the homes that were under contract that month, compared with 12.7 percent in April and 11.2 percent in June 2021.

Based on Redfin’s analysis of metro-level summary data going back through 2017, this is the highest number of sale cancellations on record since March and April 2020, when the housing market was virtually suspended due to the Chinese Community Party (CCP) virus pandemic.

The housing market has taken a hit in recent weeks as the Federal Reserve continues to raise interest rates in an effort to control high inflation.

The slowdown in the housing market is giving buyers more room to negotiate and seek concessions from sellers, while others are pulling out of their contracts, since the higher mortgage rates have made certain homes unaffordable.

Housing Bubble Could Burst

Some analysts are expecting a collapse in the real estate market in 2022, as the economy begins to slow and mortgage rates rise rapidly due to interest rate hikes.

“June home builder sentiment and survey results are in. Top themes: 1) A lot more new home buyers cancelling. 2) Price cuts becoming fairly common. 3) Drop in demand finally cooling construction cost pressures (builder layoffs also happening). Market commentary to follow…,” Rick Palacios Jr., director of research at John Burns Real Estate Consulting, wrote in a July 11 tweet.

“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 in the company’s report.

“Buyers are increasingly keeping rather than waiving inspection and appraisal contingencies,” Marr said. “That gives them the flexibility to call the deal off if issues arise during the homebuying process.”

“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 concluded.

Even during a regular peak sales season, deals can fall through for a variety of reasons.

In June 2021, at the height of the housing boom, the number of canceled transactions equaled roughly 11 percent of contracts signed that month.

However, the current situation is showing signs of a downturn, with even booming states like Texas beginning to feel a home sales crunch.

“Buckle Up. Housing Crash in Austin, TX is getting EPIC. No buyers. Selling liquidating. Inventory piling up in record fashion. June 2022 Inventory Gain of +2,132 was nearly 3x previous record. And it’s just getting started…,” Nick Gerli, founder and CEO of Reventure Consulting, wrote on Twitter.

Minor Reprieve in July

Some buyers found relief in early July, when the average 30-year fixed mortgage rate fell to 5.3 percent in its largest one-week drop since 2008 during the housing bubble crash.

On the other hand, the average rate for a 30-year fixed loan has nearly doubled since the start of 2022.

Still, the sudden runup in borrowing costs since the end of the first quarter of 2022 is quickly cooling down the once hot market.

The real estate market is in a better position than it was in 2008, and most experts are not expecting a similar crash on that scale.

“When mortgage rates shot up to almost 6 [percent] in June, we saw a number of buyers back out of deals,” Lindsay Garcia, a Miami-based Redfin real estate agent, said in the report.

“Some had to bow out because they could no longer get a loan due to the jump in rates,” she said. “Buyers are also more skittish than usual due to economic uncertainty.”

Bryan Jung
Bryan S. Jung is a native and resident of New York City with a background in politics and the legal industry. He graduated from Binghamton University.