In the face of soaring mortgage rates, home buyers are backing out of deals at the highest rate seen in a year, dealing a blow to the housing market. The combination of high mortgage rates and escalating home prices has led to buyers getting cold feet, resulting in a surge in deal cancellations.
According to Redfin, deal cancellations in September reached a notable 16.6%, marking the highest level since October of the previous year. The housing market, despite its tight conditions, appears to be swayed by the preferences of buyers who, as Redfin suggests, currently “hold all the cards.”
The surge in deal cancellations can be attributed to several factors, primarily driven by the significant increase in mortgage rates. As mortgage rates exceeded 8%, and the median home price rose to approximately $412,081, prospective first-time buyers and existing homeowners looking to relocate are facing substantial challenges. Many homeowners are compelled to relinquish the lower interest rates they locked in years ago before the sharp rise in mortgage rates.
In essence, buyers are now on the hunt for the best possible deal they can secure, and this makes them more likely to back out if any issues arise during the transaction process.
According to Heather Kruayai, a Redfin Premier Agent in Jacksonville, Florida, “Buyers are extra cautious right now. They want to make sure they’re getting a good deal given how much mortgage payments have gone up, and when they don’t feel like they’re getting a good deal, they’re backing out.”
Moreover, the rise in deal cancellations is also being fueled by surging insurance premiums and disagreements between buyers and sellers regarding essential repairs. Buyers currently have the upper hand in negotiations, and sellers are increasingly compelled to offer concessions to finalize deals.
Sellers, in turn, may have more incentive to close deals due to the apprehension that, with such high mortgage rates, home prices could potentially decline in the near future. Some homeowners, sitting on considerable home equity, are opting to cash out even if it means giving up their low mortgage rates. This stems from concerns that home prices might decrease if elevated rates persist.
Daryl Fairweather, Redfin’s Chief Economist, highlighted this concern, stating, “We expect rates to remain high for the foreseeable future, but we also expect prices to stay high into next year. Housing supply is so strained that even a small uptick in listings lures buyers off the sidelines, bolstering sales.”
Among the 50 most populous metro areas analyzed by Redfin, cities in Florida have been particularly hard-hit by the rising trend of deal cancellations in September. Jacksonville, Orlando, Tampa, Fort Lauderdale, and Miami all experienced deal cancellations exceeding 20% of pending home sales. Atlanta topped the list with a staggering 24.4% of home deals falling through.
