Potential homebuyers across the country are rethinking their property purchase agreements at historic rates, and for a number of reasons, based on a new national real estate report.
RedFin Report Sheds Some Light
US homebuyers are backing out of purchase agreements at a record pace, according to a recent report by Seattle-based real estate brokerage RedFin.
Tens of Thousands of Agreements Canceled
The real estate market saw approximately 63,000 home-purchase agreements canceled across July, making it the highest percentage of deal cancellations outside of the COVID-19 pandemic.
Homes Under Contract
This figure represents 16.1% of all homes that went under contract during the same month, although not all agreements that fell through in July went under contract in July.
Highest Aside from Covid
Aside from March and April 2020, when record numbers of contracts fell through due to the pandemic lockdowns that brought markets across the country to a stand-still, this number is the highest RedFin has found in their analysis of Multiple Listing Service Data that dates back to 2017.
What’s Driving the Trend?
The annual rate of existing home sales has also fallen by 2%, according to Redfin. So, what is causing this perceivable trend of cold feet and cancellations in the national real estate market?
The Main Driver
While, researchers who put the Redfin report together, as well as real estate agents affiliated with the company, have pinpointed a number of factors, but one stands out: Housing affordability.
The Cautious Approach
The report suggested that homebuyers are becoming much more cautious and particular about the homes they choose because the costs of buying and owning are too high to choose the wrong one. It could be the difference between a modest and a negative bank balance.
More Selectivity
“Buyers are getting more and more selective,” said Julie Zubiate, a Redfin agent involved in the report.
A Need to Be Pickier
“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,” she continued.
More Power for Buyers
What’s more, as the housing market slows and more buyers pull out over fears of untenable mortgage rates and a potential recession, the buyers who remain have less competition and more bargaining power.
“More Options and More Room to Negotiate”
“Homes are sitting on the market longer now, so buyers realize they have more options and more room to negotiate,” Jacksonville agent Heather Kruayai told Redfin. “They’re asking for repairs, concessions, and contingencies, and if sellers say no, they’re backing out and moving on because they’re confident they can find something better.”
Higher Mortgage Rates
Mortgage rates very likely have something to do with these rising withdrawals. Homebuyers are now facing mortgage rates of 5% or more, after beginning their househunting process with an expected mortgage rate of as little as 3%.
Potential to Drop
The Federal Reserve has reported its intentions to lower interest rates later in the year, leading to lower mortgage rates, so some may be waiting until later in the year before they finalize a purchase.
Recession Fears
Kruayai noted that many buyers are “skittish” due to recession fears, and don’t want to buy a home that ends up “worth $200,000 less in two years,” so they are waiting to see how the market changes.
A Warning for Fencesitters
However, real estate agents and economists associated with Redfin have warned house hunters that waiting or erring on the side of caution may not be the best long-term strategy.
High Numbers in Florida
This is especially true in Florida, according to real estate agents, which has seen the highest number of agreement cancellations. Six of the ten metro areas with the highest numbers are located in the Sunshine State.
Waiting for the Crash
Alexis Malin, a Redfina agent who also works in Jacksonville, notes that many buyers she meets are waiting for a market crash in Florida – a market crash that she isn’t confident will come.
It May Not Come
“Homes in many parts of Florida are still selling for a pretty penny,” Malin said in the report. “So I warn my buyers that the grass might not actually be greener on the other side.”
Now Could Be the Perfect Time
Redfin senior economist Elijah de la Campa is also urging potential homebuyers to make the purchase if they are able to, before mortgage rates decrease enough to drive up competition again.
Better for Some
However, as some sellers refuse to budge over sales price and buyers avoid making a decision while property prices and mortgage rates are still high, waiting for market conditions to change may be the best course of action.
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