Canceled purchase contracts inch down but stay near pandemic highs

The share of homebuyers who failed to follow through on their purchase contracts was slightly lower on a consecutive month basis in August but still wasn’t far from the pandemic’s peak.

The overall share was 15.2% or 64,000 compared to a downwardly revised 15.5% in July, according to a Redfin report released Monday. In some Sun Belt markets like Jacksonville, Florida and Las Vegas, it was above 20%. In others like Newark, New Jersey and San Francisco, it was in the single digits. A year ago in August, the average share of buyers that backed out of contracts nationwide was 12.1%, roughly in line with pre-pandemic levels. At the height of the pandemic in March 2020, it was 17.5%

The current numbers, coupled with indications that mortgage-rate shock will persist, suggest that while the contract abandonment rate may be faltering a little, it’s high enough to keep preventing a certain percentage of loan applications from making it all the way through the process

“Some homebuyers are finding that by the time they go under contract and lock in their mortgage rate, [current] rates could be much higher than they were when they toured the home and/or got pre-approved. That can kill the deal because the buyer is no longer financially comfortable with the purchase,” said Sam Chute, a Miami Redfin real estate agent, in a press release. “I advise sellers to price their homes competitively based on the current market because deals are falling through and buyers are no longer willing to pay pie-in-the-sky prices.”

Another driver for high fallout rates in the Sun Belt during August was a relative increase in choice as some housing markets have cooled, according to another report from a Redfin agent cited in the press release.

“Homebuyers now will agree to buy a house and be doing the inspection, and then back out because they found another home they love more,” said Tzahi Arbeli, a Redfin real estate agent in Las Vegas.