By Kerry Smith
If a metro saw pandemic-era sales surge, it’s more likely to have skittish buyers canceling contracts in August In Jacksonville, 1 out of 4 buyers walked away.
SEATTLE – Nationwide, roughly 64,000 home-purchase agreements fell through in August – 15.2% of homes that went under contract that month. That’s up from 12.1% a year earlier and is comparable with July’s revised rate of 15.5%, according to a new report from Redfin.
The percentage has hovered around 15% for three months in a row – the highest level on record with the exception of March and April 2020, when the onset of the coronavirus pandemic brought the housing market to a near standstill. Before the pandemic, it was consistently around 12% going back through 2017.
Homebuyers were most likely to back out of deals in Sun Belt cities that surged in popularity and price during the pandemic, such as Phoenix, Tampa, and Las Vegas. They were least likely to back out in pricey coastal hubs like San Francisco and New York, which went out of vogue during the pandemic but are now making a comeback as workers return to the office.
A slowing housing market allows more buyers to bow out of deals because they often don’t need to waive important contract contingencies in order to compete in bidding wars. As more buyers include inspection, financing and appraisal contingencies in their contract, a higher percentage can now cancel the purchase if there’s an issue, such as a failure to secure a mortgage or problems because the appraisal is different from the agreed-upon selling price.
Some buyers may also be backing out of deals because they’re waiting to see if home prices fall.
Surging mortgage rates may also be a factor. The average 30-year-fixed mortgage rate hit 6.29% last week – the highest since 2008 – sending the typical homebuyer’s monthly mortgage payment up 45% from a year ago.
“Some homebuyers are finding that by the time they go under contract and lock in their mortgage rates, rates could be much higher than they were when they toured the home and/or got pre-approved. That can kill the deal because the buyer is no longer financially comfortable with the purchase,” says Sam Chute, a Redfin real estate agent who works with sellers in Miami.
Sunbelt buyers
In Jacksonville, roughly 800 home-purchase agreements were called off in August, equal to one out of every four home transactions (26.1%) that went under contract that month. It’s the highest percentage among the 50 most populous U.S. metropolitan areas. Next came Las Vegas (23%), Atlanta (22.6%), Orlando (21.9%), Fort Lauderdale (21.7%), Phoenix (21.6%), Tampa (21.5%) and four Texas metros: Fort Worth (21.5%), San Antonio (21.1%) and Houston (20.6%).
Redfin says four of those 10 metros – Las Vegas, Phoenix, Tampa, and San Antonio – have consistently ranked on its list of top migration destinations. They initially attracted buyers because they were relatively affordable, but an influx of demand caused prices to skyrocket.
Many of the metros where deal cancellations are least common are metros that saw people leave during the pandemic, including the Bay Area and New York.
Newark, New Jersey, had the lowest percentage of deal cancellations (2.7%), followed by San Francisco (4.2%), Nassau County, New York (6.1%), New York (7%), Montgomery County, Pennsylvania (7.6%), San Jose, California (8.2%), Milwaukee (8.9%), Oakland, California (9.2%), Boston (10.1%) and Seattle (10.3%).
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