Throughout the pandemic, we have seen an insatiable buyer demand for homes. With this said, rapidly rising mortgage interest rates have certainly hit the brakes on the housing market overall. Interestingly, we have also recently observed an increase in the amount of home purchase contract cancellations as well. In fact, it appears that in markets where we saw the highest homebuyer demand throughout the pandemic we are now seeing a higher rate of contract cancellations. Nationwide, roughly 64,000 home-purchase agreements fell through in August. This equates to approximately 15.2% of homes that went under contract that month. For perspective, this figure is up from the year prior in which we saw a 12.1% cancellation rate. The current cancellation rate has hovered at around 15% for the past 3 months now. This marks the highest rate since the March/April 2020 period which coincided with the beginning of the pandemic lockdowns. Prior to the pandemic, the average cancellation rate was around 12% dating all the way back to 2017.
Why the increase in cancellations?
Not surprisingly, a slowing housing market provides more buyers to back out of deals as compared to a hot seller’s market like what was seen the past several years. For example, during the bidding wars of the past several years, many buyers would waive certain contingencies in order to ensure that their bid would be accepted by the seller. Now that the market has slowed substantially, these drastic measures are no longer necessary. As more buyers include inspection, financing and appraisal contingencies in their contracts, a higher percentage can now cancel the purchase if there are any issues.
Another factor at play is also the surging mortgage rates. In some cases, buyers are realizing that once they go under contract and lock in their mortgage rate, it is much higher than when they initially toured the home and obtained their pre-approval.
Lastly, there is also likely a segment of homebuyers that feel that home prices may be dropping in the near future. With this said, they may opt to cancel their contract and continue renting to see where home prices go to prior to re-entering the market.
Overall, we have seen a surge in contract cancellations in the sun belt states. Given that these were some of the most popular relocation states throughout the pandemic, this is not entirely surprising either. Among the 50 most populous U.S. metropolitan areas, the following Florida cities came in ranked as follows for the highest percentage of contract cancellations:
- #1. Jacksonville, FL: 26.1%
- #4. Orlando, FL: 21.9%
- #5. Fort Lauderdale, FL: 21.7%
- #7. Tampa, FL: 21.5%
As always, every local market is different. It is for this reason that you should work with a local and knowledgeable real estate agent in your respective market. Are you in the South Florida market? We can help! Contact Natasha at Live South Florida Realty, Inc. today! Also, be sure to download the Florida Home Search app for your mobile device.