Nationwide, we have been in a strong seller’s market for the past several years. In fact, many homes listed for sale ended up with multiple offers over asking price and thus resulting in bidding wars. Subsequently, it was quite rare to see sales contracts canceled. Those days are over now though. As of last week, the reported inflation rate has now hit yet another 40-year high at 9.1%. Unfortunately, this means that the Federal Reserve will yet again turn to its main weapon to combat this out-of-control inflation, which is raising interest rates. With interest rates already rising rapidly this year, we have seen approximately 18 million would be buyers priced out of the market. To read more about this, check out our previous article here. In essentially just a matter of months, this decreased buyer demand has turned the market quickly into a buyer’s market.
Less buyer competition = more negotiating
With less buyers in the market, we are already seeing more listings reduce their prices. The mere thought of listing price reductions was almost unheard of over the past several years. In fact, in some markets we are seeing approximately 25% of listings taking price reductions and this percentage is increasing. For more on this topic, check out are article titled “More Home Listing Prices Are Dropping”.
Decreased competition for homes means that buyers can be more selective and negotiate harder for homes. As a result, we are also seeing an increase in the prevalence of contract cancellations. A recent analysis showed that the prevalence of contract cancellations nationwide through June 2022 was 14.9%. Needless to say, this is dramatically higher than what we have seen over the past few years. In South Florida, several cities have seen the prevalence of contract cancellations exceed the national average. In particular, these three tri-county cities led the way:
- West Palm Beach, FL: 22.1%
- Fort Lauderdale, FL: 22%
- Miami, FL: 21.5%
The city with the highest prevalence of contract cancellations in the nation was Las Vegas, NV at 27.2%.
Summary
There is no question that rapidly rising mortgage interest rates are impacting the prevalence of contract cancellations. In many cases, buyers entered a contract to purchase a home only to have to cancel it several weeks later due to rising mortgage interest rates. In addition, with less competition in the market, buyers are becoming more selective and opting to negotiate home inspection related items even harder. If an agreement can not be reached on inspection related items, then more buyers are choosing to simply cancel the transaction.
During times of transition in the real estate market, it is even more important to have a true expert as a part of your real estate team. Are you looking to buy or sell in South Florida? Contact Natasha at Live South Florida Realty, Inc. today!
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