Rising mortgage rates and extra expenses are leading more homebuyers to cancel signed contracts, even if it means losing deposits put down for the deals.
Roughly 60,000 home purchase agreements were canceled in August, representing 15.7 percent of the homes that went into contract last month, according to a report from Redfin. The cancellation rate is the highest since October.
Those two months — October 2022 and August 2023 — have something in common: a peak in mortgage rates.
October is when rates tipped past 7 percent for the first time in 20 years. Since then, the average rate for a 30-year fixed-rate mortgage has hovered around that mark but often below it. Then, in August, the average rate was 7.07 percent and it peaked at 7.23 percent, a 22-year high.
Redfin Premier real estate agent Jaime Moore said buyers were getting “sticker shock” in the face of rising mortgage rates and expenses they may not have accounted for, such as maintenance, repairs and closing costs.
Moore added that sellers are sometimes satisfied in letting buyers cancel their contracts rather than concede to buyers’ repair requests. Buyers with a mortgage contingency in their deals can also get out of them without penalty if they cannot obtain a home purchase loan.
As a share of overall pending sales, those that fell apart increased by 50 basis points from 15.2 percent in July. A year ago, in August 2022, the share of canceled contracts was 14.3 percent.
Of the 50 most populous markets tracked by Redfin, the cancellation rate was highest last month in Jacksonville, where 26.6 percent of contracts were scuttled. San Francisco lived on the other end of the spectrum, sporting only a 6.4 percent cancellation rate.
Expensive home markets tend to have more cash sales, which are less affected by rising mortgage rates. But the Bay Area is certainly not immune to them.
Nationally, the median home sale price rose 3 percent year-over-year in August, the largest annual jump since October. Buyer demand remained below pre-pandemic levels but prices were sustained because overall housing supply remained at historic lows.
New listings increased modestly from July to August, giving the industry hope that new listings have reached rock bottom.