Buyers getting cold feet is nothing new, but as of late the number of buyers who are backing out of their home purchase agreements have hit a recent high of 15.7% of all homes that went under contract during the month of August according to a new report from Redfin.
Putting that number another way, 60,000 deals fell through in August representing a 14.3% increase year-over-year and the highest percentage since October 2022 when mortgage rates surpassed 7% for the first time in decades.
As of the end of August, the average interest rate on a 30-year fixed-rate mortgage averaged 7.07 with rates peaking at 7.23%, the highest rate recorded since 2001. This number, along with soaring home prices, has sent the typical homebuyer’s monthly payment up significantly compared to a year ago.
“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.”
Median home sale prices also rose 3% year-over-year to $420,846, the largest annual increase since last October, but was little changed from July. The record high stands at $432,780 which occurred in May 2022.
Activity in the housing market is sluggish due to rising mortgage rates, but prices remain high because the buyers who are out there are competing for a limited number of homes.
“Home prices will likely remain elevated for the foreseeable future,” said Redfin Economics Research Lead Chen Zhao. “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. And that lack of homes for sale will keep prices high because it means buyers are duking it out for a limited supply of houses.”
Home prices also posted a year-over-year gain in August due to the “base effect” from a year earlier; in August 2022, prices had recently started descending from their record high, which is contributing to the size of year-over-year increases we’re seeing now.
New listings rose 0.8% from a month earlier in August—the second small uptick on a seasonally adjusted basis following nearly a year’s worth of declines—and were down 14.4% year over year.
“New listings have likely bottomed out,” Zhao said. “Most of the homeowners who feel handcuffed by high rates have already made the decision not to sell. That means 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 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 in to their low mortgage rates; for many, selling their home and buying a new one would mean taking on a much higher monthly payment.
To view the report in its entirety, click here.