Deal or no deal? Home buyers increasingly canceling contracts

Slowing housing market, rising mortgage rates biggest factors: Redfin

(iStock/Illustration by Kevin Rebong for The Real Deal)
(iStock/Illustration by Kevin Rebong for The Real Deal)

Homebuyers facing the question famously posed by game-show host Howie Mandel are increasingly saying, “No deal.”

Some 60,000 home purchase agreements were ripped up last month, equivalent to 14.9 percent of homes that went under contract that month, according to a report from Redfin. The canceled contracts include deals agreed upon before June.

That’s the highest percentage since Redfin began collecting the data in 2017, excluding March and April 2020, the first two months of the pandemic.

The percentage of canceled contracts compared to homes put under contract is up from 12.7 percent in May and up from 11.2 percent year-over-year.

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Those who are canceling contracts can largely be tucked into two camps. Some are exercising contingency clauses, which was not an option for buyers who waived such escape clauses to increase their offer’s chances of being accepted when the market was hotter.

Others are backing out because mortgage rate increases rendered their accepted bids unaffordable. In mid-June, the average 30-year fixed-rate loan flew past 6 percent, significantly higher than it was at the beginning of the year, when it was at an average of 3.22 percent.

Housing prices are still rising but less than they were, and signed contracts indicate the number of sales will drop in the coming months. That might ease the buyers’ panic that had many closing on homes they had never even visited.

Mortgage rates recently started falling back toward 5 percent, which may alleviate some problems for would-be homebuyers, but that was not the case for most of June, on which the report is based.

“If rates were at 5 percent when you made an offer, but reached 5.8 percent 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,” said Redfin deputy chief economist Taylor Marr in the report.