Mortgage rates hovering around 8% and a combination of other factors making housing more expensive are causing skittish home buyers to back out of their purchases at the highest level in nearly a year.
According to real-estate brokerage Redfin, about 53,000 home-purchase agreements were cancelled in September, accounting for approximately 16.3% of all the homes that went into contract that month. This percentage of cancellations is the highest since October 2022 when mortgage rates exceeded 7%.
The Cost of Mortgage Rates
Currently, some lenders are quoting 8% interest rates for 30-year mortgages, significantly increasing the cost of buying a home. As a result, a typical home buyer looking to purchase a median-priced home must allocate over $3,000 per month for their mortgage at an 8% rate, compared to $2,600 if rates were at 6%.
Buyers are exercising extra caution in the current market. Heather Kruayai, a real-estate agent based in Jacksonville, Fla., explains that buyers want to ensure they are getting a good deal given the substantial increase in mortgage payments. When they feel like they're not getting a favorable deal, they are backing out of their purchase agreements.
Housing Market Insights
In September, the median home sale price reached $412,081, indicating a 1.9% increase from the previous year, according to Redfin's data. Furthermore, among the top 50 most populous metro areas, cities such as Atlanta, Jacksonville, Orlando, Tampa, and Fort Lauderdale experienced the highest share of homes that went under contract but later saw buyers withdraw.
Home Purchase Deals Cancelled in Atlanta and Jacksonville
According to recent data, a significant percentage of homes that went under contract in Atlanta and Jacksonville were ultimately cancelled. In Atlanta, nearly a quarter of homes (24.4%) experienced cancellations, while in Jacksonville, 24% of purchase deals fell through. Orlando ranked third with 23.6% of homes falling out of contract.
A Shift in Rankings
Interestingly, just a year ago, Jacksonville held the top spot in terms of cancelled home purchase deals, with Atlanta coming in second. However, the current statistics indicate a reversal in this trend.
Reasons for Cancellations
Kruayai, a Florida-based agent, sheds light on the factors contributing to the increased number of cancellations in the state. She states that buyers have additional considerations when purchasing a home, often leading them to walk away from the deal. One significant factor is skyrocketing insurance premiums. Moreover, disagreements between buyers and sellers regarding necessary repairs also contribute to the breakdown of transactions. Kruayai emphasizes that buyers currently hold a powerful bargaining position, forcing sellers to offer more concessions to ensure deal closure.
No Opportunity for Other Buyers
It is important to note that despite the rise in buyer cancellations, this does not translate into an abundance of homes re-entering the market for other buyers. According to Redfin, prices are continuously climbing due to high demand for a limited number of available homes. The competition is particularly fierce for starter homes, as housing affordability becomes increasingly stretched with rising interest rates.
Rising Prices and Competitive Market
Redfin agents further highlight that as a result of intense competition among buyers, one-third of homes sold in September fetched prices higher than their final list price. This indicates the continuous upward trajectory of home prices and the fervent market conditions.
In conclusion, while there has been an increase in cancelled home purchase deals in Atlanta and Jacksonville, it is crucial to consider the larger context of a highly competitive market with limited housing supply.