SEATTLE–Americans are canceling deals to buy homes at the highest rate since the start of the Covid pandemic, a new analysis from Redfin shows.
According to Redfin, the share of sale agreements on existing homes canceled in June was just under 15% of all homes that went under contract. That is the highest share since early 2020, when homebuying paused immediately, albeit briefly, Redfin reported. Cancelations were at about 11% one year ago.
“Higher mortgage rates and surging inflation are causing many potential homebuyers to reconsider their purchases,” CNBC reported. “The average rate on the 30-year fixed mortgage started this year around 3% and then began rising steadily.”
The rate briefly shot above 6% in mid-June before settling in a narrow range around 5.75% now, according to a Mortgage News Daily report cited by CNBC.
Higher Mortgage Rates Felt
The news outlet further cited a report from Attom, a property data provider, that showed higher mortgage rates have also caused some borrowers to no longer qualify for the loans they want.
“Lenders generally use a debt-to-income ratio of about 28% as the ceiling for home loans. The costs of owning a median-priced home in the second quarter required 31.5% of the average U.S. wage,” CNBC said, pointing to the Attom data. “That's the highest percentage since 2007 and up from 24% the year before, marking the biggest jump in more than two decades.”
‘Room to Negotiate’
Raylor Marr, deputy chief economist with Redfin, told CNBC, "The slowdown in housing-market competition is giving homebuyers room to negotiate, which is one reason more of them are backing out of deals. 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."
The report noted that homebuilders are also seeing higher cancelation rates. Even before the sharpest increase in rates in June, cancelations in May jumped to 9.3% in a survey of builders by John Burns Real Estate Consulting. That compares with 6.6% in May 2021.
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