Canceled Deals

Picture this… you spend the last two years doing everything possible to purchase a home. A worldwide pandemic is surging and wreaking havoc on an already strained real estate market. Open houses are occurring virtually and yet homes are still selling in a matter of hours, oftentimes overbid to the point of unattainability. It’s now 2022 and you’ve finally managed to elbow your way into the market and have an offer accepted. Enter: the highest cancellation rate in decades. 

According to a new report from real estate listing and technology service Redfin, the rate of buyers canceling their share of sale agreements has risen to 15%. That’s the highest rate it’s been since the Covid-19 pandemic hit the scene. Even this time last year saw a cancellation rate of just over 10%. 

But Why? 

Why after years of an insanely hot market would buyers finally nab a contract just to back out of it? As Redfin puts it, higher mortgage rates and surging inflation are causing many potential homebuyers to reconsider their purchases.

When mortgage rates briefly shot over 6% in June before settling in the upper-5’s, it did two things. It caused some buyers to no longer even qualify for a mortgage and caused others to worry about recession. Since the housing crash of 2008 still feels like recent memory for a lot of people, most buyers don’t want to overextend their finances on a home that may depreciate in a year or so. 

“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 Taylor Marr, Redfin’s deputy chief economist. “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.”

This raise in mortgage rates is doing exactly what it was intended to do: slow the housing market to a more manageable pace in an effort to curb inflation.