Home buyers are getting cold feet.
Prospective buyers are increasingly backing out of deals, with 63,000 agreements being called off in July, according to a new report from Redfin. The canceled agreements represent 16.1% of all the homes that went under contract in July.
That’s the highest rate on record outside of the start of the pandemic in March and April 2020, the company said. Redfin started tracking this data in 2017.
“About 80% of the seller contracts I have right now, they’re paying for at least $5,000 to $10,000 in closing costs for the buyers, because the buyers requested that to lower their interest rates,” Andrew Vallejo, an Austin, Texas-based Redfin agent, told MarketWatch.
Vallejo said that a buyer recently terminated a contract and the seller had to offer a $150,000 price reduction for them to stay.
Especially in Austin, which was a pandemic favorite for many remote workers and saw list prices climb significantly upward, “a lot of that froth is just slowly cooling down,” Vallejo said.
The highest rate of home-purchase cancellations was in Jacksonville, Fla., where 800 agreements were called off in July. In other words, nearly 30% of homes that went under contract that month fell through.
Jacksonville was followed by Las Vegas, Nev., Lakeland, Fla., New Orleans, La., and San Antonio, Texas.
Cancellations were the lowest in Newark, N.J.; Omaha, Neb.; and Nassau County, Rochester and New York City, all in the state of New York.
For buyers, this is an opportunity, Redfin said.
Competition is declining, and house hunters in the market are “enjoying newfound bargaining power,” as compared to the pandemic bidding years, according to the report.
“Homes are sitting on the market longer now, so buyers realize they have more options and more room to negotiate,” Heather Kruayai, a Jacksonville, Fla.-based real-estate agent with Redfin, told the site.
“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,” she added.
“‘For the first time, I’ve had sellers that take offers that have very low down payments, that have a lot of contingencies.’”
— Andrew Vallejo, an Austin, Texas-based Redfin agent
Given the increasing options buyers are seeing on the market, sellers’ reluctance to cover repainting costs, or roof repairs, are becoming non-negotiables, Alexis Malin, another Jacksonville-based Redfin agent, told the site.
Buyers are also concerned about a potential recession that could push home prices down, Kruayai said, so some are choosing to wait for prices to go down further before jumping in.
But for brokers and sellers, it’s not such a great time.
“For the first time, I’ve had sellers that take offers that have very low down payments, that have a lot of contingencies,” Vallejo said. “And those buyers are now able to put those contingencies in and have sellers take them seriously. If this would have been in the spring, that wouldn’t have worked.”
Real-estate brokerage and tech company Compass Inc. on Monday signaled doom and gloom, slashing its annual revenue guidance and reporting plans to cut costs amid the market downturn.
Since mortgage rates have doubled since the pandemic and cooled demand, Rob Reffkin, the founder, chairman and CEO of Compass, said during an earnings call that current economic headwinds had “created an enormous amount of uncertainty for the rest of the year, but we are hoping for a soft landing.”
Reffkin said the company is prepared for the real-estate market to be 25% below where industry experts believed it would be six months ago.
“Never in my time at Compass have we seen such a big downturn in the market in such a short time,” he added.
The average on the 30-year fixed-rate mortgage was 5.22% as of August 11, compared to 2.87% a year ago, according to Freddie Mac.
Builders are feeling less confident about the future. Construction on new single-family and multi-family homes fell in July.
Home builders were even gloomier in August, with the National Association of Home Builders recently noting that one in five had reduced prices to increase sales or limit cancellations.
Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at firstname.lastname@example.org.
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