One in seven pending home sales in the U.S. are getting canceled, the highest share on record for this time of the year, due in part to “sticker shock,” according to a recent report from Redfin.
More than 41,000 home-purchase agreements fell through in January, equal to 14.3% of homes that went under contract that month, up from 13.4% a year earlier and the highest cancellation rate for this time of year since at least 2017, the firm reports.
Atlanta, Las Vegas, Houston and parts of Florida are seeing the highest share of deals falling through, with supply piling up in those areas. Los Angeles is among the metro areas with the biggest increase in canceled sales, due largely to January’s devastating wildfires, Redfin says.
High mortgage rates and high home prices – combined with economic uncertainty – are causing some would-be buyers to change their minds.
Increasing inventory and reduced demand has tilted the housing market in buyers’ favor in recent months. As a result, some house hunters backing out during the inspection period because a better house for them has come along – or at least the promise of a better house.
“I’m seeing more homebuyers back out of deals than usual, and I’m hearing the same from other agents and mortgage lenders in the area,” says Sam Brinton, a Redfin agent in Salt Lake City, Utah, in the report. “Some buyers are getting cold feet with everything going on in the world. But even with more cancellations, there are also more buyers out there in general. The nice homes in desirable locations are selling quickly, and those buyers are less likely to cancel.”
Because a fair amount of sales are falling through, some Redfin agents are advising buyers to keep a close eye on homes they want to buy – even if they lost a bidding war for it.
“It’s worth checking in with the listing agent about a week after the house goes under contract,” says Alison Williams, a Sacramento Redfin Premier agent. “Twice since the start of the year, I’ve found out the original buyer canceled the contract, and my clients were able to get their offers accepted before the home went back on the market.”
The portion of home-purchase agreements that are getting canceled is above typical levels for the start of the year, but it’s lower than the cancellation spikes Redfin saw at the start of the pandemic and in late 2022.
A record 16.4% of deals were canceled in March 2020, when the onset of the pandemic scared away many buyers. And nearly as many deals were canceled in October 2022, when mortgage rates soared above 7% for the first time in 20 years.
That development that sidelined a lot of house hunters and gave the ones who remained more leeway to back out of contracts if a home wasn’t perfect.
U.S. cities that saw the most canceled deals in January included Atlanta, with one in five (19.8%) pending home sales were canceled, followed by Orlando, where 18.2% of deals were canceled, Las Vegas, where 17.9% of deals were canceled, Houston, where 17.8% of deals were canceled, and Jacksonville, Fla., where 17.8% of deals were canceled.
Photo: Mahen Rin