Homebuyers regain the upper hand in the cooler real estate market
Elon Musk isn’t alone in trying to back out of the deal. Nearly 15% of pending home sales failed to close in June, a new post-pandemic high according to an analysis of MLS data released by Redfin on Monday..
why does it matter: It’s a sign of how quickly the housing market has adapted to the rise in mortgage rates that began in March — and it signals the beginning of a return to sanity from the boom, with the balance of power shifting once again to homebuyers. Prices are likely to drop somewhat.
- Taylor Marr, an economist at Redfin, said sharp rate increases have not only put the brakes on the housing market, they have pushed it against the wall. But he expects the number of cancellations to fall as sellers adjust prices to the new reality.
Zoom out: Typically, the majority of homebuyers enter into pending sales agreements with a contingency that allows them to back out of the deal, for example, if the inspection returns with problems, or something is off in the appraisal.
- When the market was booming just a few months ago, a lot of buyers were giving up on those contingencies. Those days are pretty much gone – Possibly the reason for some slight increase in cancellations.
- Deals that failed to close in former metro hotspots in the Southwest are on the rise. In Las Vegas, they were 27%. Several Florida cities are seeing nearly 25% cancel, including Lakeland, Cape Coral, Jacksonville and Orlando.
the hard working student: This 14.9% national average is perhaps even more impressive because total pending home sales fell in June – so we’re looking at a larger percentage from a smaller universe.
while, Other deals have failed because fast-moving mortgage rates mean buyers can no longer afford the home they want—either they haven’t capped their price when they sign the contract or their price lock has expired.
- These buyers are either withdrawing or, in some cases, the underwriters will no longer agree to the mortgage, Marr said.
New local market Feel it: Homebuilders are reporting an entirely different buying landscape, with significant declines in sales and foot traffic to homes, and an increase in cancellations, according to a June Burns Real Estate Consulting survey.
- “The climate for sales and traffic is very dismal. Cancellations are very high,” says a construction worker at Phoenix, quoted in the report.
A construction worker in Austin sums it up: “Sales have fallen off a cliff. We sell a third of what we sold in March and April. Buyers have no urgency and are concerned about interest rates and inflation. The persistent negative outlook that is constantly reported in the news is not helping.”