If you’re in the middle of selling a house, brace yourself: In yet another sign of the housing market icing over, more buyers are getting cold feet.
Around 60,000 deals fell through in June—14.9% of all homes under contract and the most in any month since the pandemic’s early days, according to an analysis of transaction data by real estate company Redfin this week. That’s well above the more typical 11.2% cancellation rate from a year earlier, and the the third-highest on record behind March and April 2020, when COVID-19 lockdowns forced a wave of cancellations.
The sudden epidemic of buyers backing out of deals is a sharp reversal from last year, when the market was so hot, many buyers were waiving inspections just to improve their chances of buying a home. A major reason for the shift: Mortgage rates have risen sharply in recent months, making homebuying less affordable. That’s forcing many would-be buyers out of the market, including some who were already deep into completing a deal, Redfin said.
“If rates were at 5% when you made an offer, but reached 5.8% by the time the deal was set to close, you may no longer be able to afford that home or you may no longer qualify for a loan,” Redfin Deputy Chief Economist Taylor Marr said in the analysis.
The spike in deals falling through is the latest indication that the pandemic-era housing market boom is fading. With mortgage rates well above their pandemic-era lows and prices continuing to soar, the average monthly mortgage payment rose more than $500 in the first five months of the year alone. That’s caused many house hunters give up and decide to rent for the time being. Home sales have been slowing down for months, and the number of buyers who locked in mortgages for purchases fell in June, and was 21% less than the same month in 2021, mortgage data company Black Knight said this week.
With all signs pointing to a slowing housing market, will prices finally start to come down? Don’t hold your breath. Housing affordability is likely to get worse before it gets better, economists at the National Housing Conference said in a report earlier this month.
While price growth is likely to slow from its current breakneck pace, longer-term problems with the housing supply are probably going to keep affordability from improving much: namely, a chronic shortage of houses built since the 2008 financial crisis and supply chain issues that have held back homebuilding since the pandemic hit.
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