Homebuyers are backing out of their deals at a record pace
American homebuyers are getting cold feet just before completing their purchase, signaling more trouble ahead for the real estate market.
According to Redfin, nearly 56,000 home purchases were canceled in June, which is equivalent to roughly 15% of all homes that were sold. This is the highest level of cancelations since Redfin began tracking the data in 2017.
Redfin said homebuyers are skittish because of high interest rates and other affordability challenges. “Buyers are getting more and more selective,” Julie Zubiate, a Redfin real estate agent, told Bloomberg.
“They’re backing out due to minor issues because the monthly costs associated with buying a home today are just too high to rationalize not getting everything on their must-have list.”
Mortgage rates have been on a steep incline since 2022, when the Federal Reserve began raising interest rates to combat inflation. According to Freddie Mac, 30-year rates have averaged 7.02% over the past 52 weeks.
For perspective, rates were at least half that level in 2020 and 2021.
At a 7% interest rate, new buyers would need to pay more than $2,400 per month to finance an average home based on Zillow’s mortgage calculator. This figure assumes a 20% down payment on a home priced around $430,000.
In the meantime, home listings continue to rise as buyers remain on the sidelines waiting for affordability conditions to improve.
More property listings flood the market
Economists have long argued that America’s housing affordability crisis is being fueled by a lack of supply. But more expensive homes flooding the market isn’t improving affordability conditions.
According to Fannie Mae, home listings have increased by 30% since last year, yet home prices remain elevated, and buyers continue to be sidelined.
Separate data from Altos Research showed 559,700 single-family homes on the market through May, a 33% increase compared to a year ago.
“Despite a more than 30% increase in listings of homes available for sale compared to a year ago, certain indicators of housing activity remain soft,” Fannie Mae said in a recent report, referencing the sharp decline in home sales in the second quarter.
Fannie Mae’s findings are consistent with a recent report by the University of Kansas and The New School, which found that America suffers from a lack of affordable homes rather than an absolute shortage of properties.
The report said, “Affordability challenges stem more from the collision of low incomes with high housing prices [...] than from any absolute shortage of homes.”
Nevertheless, buyers are likely to find better deals in areas where housing supply has far outpaced demand.
Nick Gerli of Reventure Consulting says southern states like Florida, Texas, Georgia, and Tennessee have witnessed an explosion in housing construction in recent years. As demand remains subdued, homes in these regions are more likely to see price cuts.