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Monday, August 1, 2022
Market Shift: More Buyers Canceling Contracts
By Amber Randall
An uptick in buyer cancellations reflects a changing market, though the specific reasons range from interest rates and recession fears to hopes for future options.
FORT LAUDERDALE, Florida – More buyers are canceling their pending home contracts in South Florida, a sign that the market may be shifting away from the boom of the last two years.
In June, 22.1% of pending home sales were canceled in West Palm Beach, 22% of pending sales were canceled in Fort Lauderdale, while 21.5% were canceled in Miami, according to data from Redfin.
“The rates of cancellations tend to be correlated to a cooling market,” said Taylor Marr, deputy chief economist with Redfin. “All of these areas that have been booming, they are starting to cool off and some of a balance is returning.”
The national rate of pending sales cancellation is at 15% for the month of June.
There are a few key factors in pending home contracts being canceled: rising interest rates that home shoppers did not account for when they started searching for homes months prior; buyers no longer willing to waive the contingency part of their contracts and take the house as is; and buyers becoming weary of the housing market in general, experts said.
When the housing market took off, many buyers didn’t have room to negotiate on homes since sellers had more of the power.
Early phases of a market shift also put buyers and sellers in different mindsets, resulting in cancellations.
“When a market shift is starting, sellers are still riding their highs and don’t want to negotiate on price or terms, so if a buyer asks for repairs to be done after the inspections, sellers may refuse, and buyers may decide to cancel the contract and walk away from the deal, since there are more homes available now,” said Brian Pearl, principal agent of the Pearl Antonacci Group in Boca Raton.
The rise in mortgage rates is also playing a role in pending contracts cancelling, explained Whitney Dutton with the Whitney Dutton Group in Fort Lauderdale.
Rates have increased significantly in the past seven months. In January, rates for a home were around 3.22%; in July, rates hit around 6%.
“Some people have been looking for homes for six months or more and they did not run the new numbers with the new interest rates,” Dutton said, adding that for some buyers the interest rates have pushed them past their debt-to-income maximum, reducing how much they can purchase as well.
The highest cancellations over the past five years happened right as the pandemic hit, as the pandemic caused concern among homebuyers as to the strength of the housing market. There was also a rise in the cancellations in 2017 and in 2018, when interest rates started to rise again.
“It rises when there is a disruption in the market,” said Marr.