Home Sale Cancellations Rise Amid Affordability Challenges

June is mostly a peak month for home sales, but you wouldn’t understand it based on the record-high rate of contract cancellations last month.

Based on a recent report from real estate brokerage Redfin, 56,000 purchase agreements were canceled last month, or about 15% of all pending sales transactions. That is the best cancellation rate for June since Redfin began tracking the metric in 2017. (The all-time high percentage of voided contacts occurred in March 2020, when pandemic quarantines went into effect and homebuyers canceled 17.6% of all sales contracts.)

“We’re seeing nightmare scenarios where deals are getting canceled on the last minute for essentially the most minute reasons,” Rafael Corrales, a Redfin Premier agent in Miami, said within the report.

Buyers often back out through the inspection period after they realize how much the acquisition will cost after homeowners insurance, property taxes and other fees are added to the combo.

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Some areas are seeing higher cancellation rates than others. Three of the cities with the best percentage of voided contracts are situated in Florida, which has been a hotspot for homebuyers in recent times. In Orlando, almost 21% of signed purchase agreements were scrapped — the best rate of all. One other pandemic hotspot, Las Vegas, had a 20.2% cancellation rate in June.

Affordability challenges plague the housing market

Buyers have faced a series of challenges over the past few years that proceed to plague today’s market. Based on the Redfin report, home prices proceed to extend, hitting an all-time high median sale price of $442,525 in June.

At the identical time, mortgage rates averaged 6.92% for the month, and the standard monthly mortgage payment was as much as about $2,900. For the sake of comparison, in June 2020, with mortgage rates averaging 3.16% and a median sales price of $311,300, the standard monthly payment was about $1,340.

Since the costs are so high, many buyers are opting to attend out the market, hoping for mortgage rates, home prices or each to ease. So as to add to the difficulties homebuyers face, the variety of homes on the market continues to be tight, even though it has been improving steadily.

As an alternative of overpaying for a house that isn’t an ideal fit, many would-be buyers are canceling agreements on the last minute. “They’re backing out resulting from minor issues since the monthly costs related to buying a house today are only too high to rationalize not even getting all the pieces on their must-have list,” Julie Zabiate, a Redfin Premier real estate agent working within the San Francisco Bay market, said within the report.

The silver lining to the customer pullback

Despite what appears to be dire circumstances, prospective buyers may soon receive some relief through the summer buying season.

Current mortgage rates have fallen over the primary few weeks of July and are at their lowest level since mid-March. If the general downward trend in rate movement continues, as many housing experts anticipate, affordability will improve.

With fewer lively buyers out there, home sellers are also having to adapt. Listings sat in the marketplace for a median of 32 days last month, the best it’s been since June 2020. Slower sales mean that inventory, which has been extremely low over the last few years, is slowly recovering.

Also gone are the times of bidding wars, which resulted in home sales hundreds of dollars over the asking price (and helped push prices as much as recent highs). Price cuts are taking their place as sellers attempt to lure buyers back. Based on Redfin, about 20% of all listed homes had a price cut, the best percentage on record for the month of June.