The housing market has been red hot for the past year, but recent reports show that the market is starting to cool down. However, this cooling trend has led to a new issue - homebuyers are canceling pending contracts at the highest rate since the beginning of the COVID-19 pandemic.
Shonn McCloud, a lead senior agent with Redfin, has said that many potential buyers are backing out of deals due to rising interest rates. This is taking many buyers who typically would qualify out of qualifying for their home loans, he added.
Redfin reports show that roughly 60,000 home purchases nationwide fell through in June, and 24.5% of pending sales were cancelled in the Orlando Metro Area alone. According to McCloud, the problem isn't that buyers don't want the homes - it's just that it costs too much, especially with the burden of high gas prices and inflation.
McCloud further explained that the home purchase price is not the biggest issue for buyers; it’s the monthly obligation. "People are not pleased when they see ($3,000) mortgage per month versus their original quote, which would have been at ($2,100 or $2,200)," he said.
Despite the prices, McCloud said the industry is slowly moving into a buyer's market. As more people back out of deals, more houses are becoming available, and buyers have more power to negotiate. "Now, they see that there are more homes on the market that are now competing with the homes that they are already under contract for," he said.
Buyers can pull out of their contracts and find a better deal elsewhere, according to McCloud. He advised sellers to pay attention to timelines when hiring an agent and make sure the financing contingency is ending well in advance of the closing date.
He added that sometimes buyers won’t find out whether they qualify for the loan right before the closing date, which could put sellers in a tight spot. McCloud said if interest rates increase again, it will be detrimental to the housing market. He explained that there will not be many people pulling out of deals because they won’t be able to go under contract at all.
In conclusion, the cooling of the housing market has led to a rise in cancellation rates of pending home sales. McCloud advises sellers to pay attention to timelines and urges buyers to shop around for better deals. With more houses becoming available, the industry is slowly moving into a buyer's market, which gives buyers more power to negotiate. However, if interest rates rise again, it could be detrimental to the housing market.
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