Nearly 60,000 home sale contracts were cancelled in June, according to Redfin’s analysis of MLS data, accounting for 14.9% of all homes under contract for the month.
This marks the highest cancellation rate since April of 2020, when COVID lockdowns choked the housing market.
“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 Redfin Deputy Chief Economist Taylor Marr. “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.”
Marr added, “Rising mortgage rates are also forcing some buyers to cancel home purchases. If rates were at 5% when you made an offer, but reached 5.8% by the time the deal was set to close, you may no longer be able to afford that home or you may no longer qualify for a loan.”
We would observe that the net positive of this cancellation data is alleviation of tight inventory pressures, which has frustrated buyers who in some markets have had to put in dozens of offers on properties at well over the listing price before one is accepted.
Although there is no indication that prices will soften, Redfin’s analysis can be translated as hopeful for housing. The frenzy of homebuying appears to be calming which means perhaps waiving inspections as a means of being the most attractive buyer will also diminish.
But we also observe a net negative of this reporting in that affordability remains a tremendous challenge, and that although the MLS can’t tell you every buyer’s reason for cancellation, a growing reason for relocation decisions is personal politics.
The Supreme Court overturning Roe v. Wade specifically is impacting relocation trends. Although evidence at this point remains fairly anecdotal, we predict red states will get redder and blue states will get bluer as a result.
Dr. Lawrence Yun, Chief Economist at the National Association of Realtors (NAR) noted in his midyear analysis that uncertainty would be the common theme in all upcoming data, and was primarily focused on inflation bumping up mortgage rates by $300 to $400 monthly which is untenable for many homeowners. Marr’s analysis appears to be in line with this concern as well.