Buyers facing high mortgage rates are pulling out of their home-purchase agreements at the highest rate in nearly a year.
Nearly 60,000 home-purchase agreements were canceled nationwide in August, equal to 15.7% of homes that went under contract that month, according to a new report from Redfin.
That rate is up from 14.3% in August 2022 and marks the highest percentage since October 2022, when mortgage rates surpassed 7% for the first time in two decades.
The average interest rate on a 30-year-fixed mortgage was 7.07% in August. Rates last month surged to 7.23%—the highest since 2001 – sending the typical homebuyer’s monthly payment up significantly from last year.
“I’ve seen more homebuyers cancel deals in the last six months than I’ve seen at any point during my 24 years of working in real estate. They’re getting cold feet,” said Jaime Moore, a Redfin Premier real estate agent in Reno, Nevada.
“Buyers get sticker shock when they see their high rate on paper alongside extra expenses for maintenance, repairs and closing costs. Many of them would rather back out, even if it means losing their earnest money. A lot of sellers are also willing to let buyers slip away because they don’t want to concede to repair requests,” Morre said.
Home prices not expected to fall
Home prices are high due to competition among buyers for limited inventory in the market.
The median U.S. home sale price rose 3% year over year to $420,846 in August, the largest annual increase since October 2022.
This price was 2.8% below the May 2022 record of $432,780, and is expected to remain elevated for the foreseeable future.
“The Federal Reserve still has more work to do in its battle against inflation, which means mortgage rates are unlikely to come down anytime soon. As long as rates remain high, homeowners will be reluctant to sell,” Chen Zhao, Redfin economics research lead, said, noting that a lack of homes for sale will keep prices high because it means buyers are competing for limited home supply.
Buyer demand Is below pre-pandemic levels, but no longer in freefall
Pending sales declined 0.6% on a seasonally-adjusted basis to 381,192 in August from the previous month. Compared from a year earlier, pending sales dropped 18.1%.
This figure has been hovering below 400,000 since the end of 2022, compared with nearly 500,000 just before the pandemic.
Pending sales have stabilized as the initial shock of elevated mortgage rates moves further into the rearview mirror, but high housing costs are still keeping many buyers on the sidelines, according to Redfin.
New Listings Tick Up Slightly, But Overall Housing Supply Remains at Record Low
New listings rose 0.8% to 474,239 in August on a seasonally-adjusted basis from July.
It’s the second small uptick on a seasonally-adjusted basis following nearly a year’s worth of declines. Year-over-year new listings were down 14.4%. Most homeowners who feel handcuffed by high rates have already made the decision not to sell, said Zhao.
“New listings have likely bottomed out,” she said. “Many of today’s sellers are putting their homes on the market because they have to, in some cases due to divorce, family emergencies or return-to-office policies.”
Still, the total number of homes for sale hit a record low of 1.3 million in August, falling 1.1% month over month on a seasonally adjusted basis and 20.8% year over year, the largest annual decline since June 2021.
Housing supply is at an all-time low because homeowners feel locked into their low mortgage rates. For many, selling their home and buying a new one would mean taking on a much higher monthly payment, Redfin said.
