Buyers cancel contracts in droves as prices and interest rates rise

Inman News

Nearly 60,000 home purchase contracts were canceled nationwide during August, even when it meant losing their earnest money deposits, according to Redfin’s report

Home purchase deals fell through at the highest rate seen in nearly a year during August as would-be homebuyers faced serious sticker shock, according to new data.

Nearly 60,000 home purchase contracts were canceled nationwide during August, according to data released on Friday by Redfin — equal to 15.7 percent of homes that went under contract that month.

That’s up fr0m 14.3 percent a year prior and marks the highest percentage recorded since October 2022, when mortgage rates surpassed 7 percent for the first time in decades.

August again saw mortgage rates hit new eye-popping highs, averaging 7.07 percent throughout the month and hitting 7.23 percent at one point — the highest rate seen since 2001.

One Redfin agent said she has seen more canceled deals in the last six months than at any other point in her 24-year career.

“They’re getting cold feet,” Jaime Moore, a Redfin agent in Reno, Nevada, said. “Buyers get sticker shock when they see their high rate on paper alongside extra expenses for maintenance, repairs and closing costs. Many of them would rather back out, even if it means losing their earnest money. A lot of sellers are also willing to let buyers slip away because they don’t want to concede to repair requests.”

Home prices joined mortgage rates in hitting new highs, as the extremely limited inventory of homes for sale continued to keep prices from slipping. The median U.S. home sale price rose 3 percent year over year to $420,846 in August, the largest annual increase since October 2022, according to Redfin data.

“Home prices will likely remain elevated for the foreseeable future,” Redfin Economics Research Lead Chen Zhao said in a statement. “The Federal Reserve still has more work to do in its battle against inflation, which means mortgage rates are unlikely to come down anytime soon. As long as rates remain high, homeowners will be reluctant to sell. And that lack of homes for sale will keep prices high because it means buyers are duking it out for a limited supply of houses.”

New listings of homes for sale rose 0.8 percent from a month earlier during August, but remained low overall — down 14.4 percent year over year, according to the report.

“New listings have likely bottomed out,” Zhao said. “Most of the homeowners who feel handcuffed by high rates have already made the decision not to sell. That means many of today’s sellers are putting their homes on the market because they have to, in some cases due to divorce, family emergencies or return-to-office policies.”