BAM Key Details:
- A new Redfin report shows nearly 60,000 home purchase agreements falling through in August, representing 15.7% of homes that went under contract that month—up from 14.3% a year ago and the highest fall-through rate since October 2022.
Homebuyers in August backed out of home purchases at the highest rate in almost a year, according to a new report from Redfin. Nationwide, almost 60,000 home purchases fell through, representing 15.7% of the homes that went under contract in August.
That’s up from 14.3% a year ago and the highest rate since October 2022.
Source: Redfin
Sticker shock from high mortgage rates is the primary reason behind these cancellations. Back in October 2022, the 30-year fixed rose above 7% for the first time in two decades.
In August 2023, the average rate was 7.07%, but at one point, it climbed to 7.23%—the highest since 2001—causing a significant increase in homebuyer mortgage payments.
Source: Mortgage News Daily
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. 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.
Home prices see the biggest annual increase since October 2022
In August, the median U.S. home price went up 3% year over year to $420,846—the biggest annual jump since October 2022, nearly a year ago. Home prices didn’t change much (-0.2%) from the previous month and remained 2.8% below the peak of $432,780 set in May 2022.
Source: Redfin
Home purchase activity has slowed dramatically due to high mortgage rates, but home prices remain elevated because enough buyers are competing for a short supply of affordable options.
Home prices will likely 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. 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 posted a year-over-year increase in August, largely because of the downward trend in home prices that started a year ago in August 2022. That descent from a record high created a “base effect” which is now contributing to the size of annual price increases in 2023.
Three metros with the biggest annual increases in median home sale prices:
- Newark, NJ (16.7%)
- Miami (14.6%)
- Rochester (14.3%)
The median home sale prices fell year over year in 15 of the metros in Redfin’s study, led by these three:
- Austin, TX (-7%)
- Boise (-5.8%)
- Fort Worth, TX (-2.7%)
Pending sales are below pre-pandemic levels but are no longer falling as quickly
Pending sales fell 0.6% month over month on a seasonally adjusted basis. They fell 18.1% year over year. While they’re no longer in free-fall, compared to earlier this year, pending sales are still below pre-pandemic levels.
Since the end of 2022, the number of pending sales has been hovering below 400,000—down from nearly 500,000 just before the pandemic.
Source: Redfin
As the initial shock of 7%-plus mortgage rates has subsided, pending sales have more or less stabilized. But the high cost of housing is still keeping many would-be buyers out of the market.
Pending sales declined by 70.5% year over year in Boise, Idaho—the steepest annual decline of all the metros in Redfin’s analysis.
Top three metros with the biggest annual declines in pending sales:
- Boise, ID (-70.5%)
- Hartford, CT (-57.3%)
- New Haven, CT (-55.8%)
Pending sales rose year over year in only two metros:
- Rochester, NY (+0.9%)
- McAllen, TX (+0.5%)
At -1.8%, Detroit, MI, had the smallest decline in pending sales.
As for closed sales, the biggest annual declines were in Bridgeport, CT (-25.9%), Stockton, CA (-25.8%), and Tacoma, WA (-25.7%). The smallest annual drops were in North Port, FL (-0.1%) and Phoenix, AZ (-2.9%).
At 1.4%, Las Vegas, NV, was the only metro that saw a year-over-year increase in closed sales.
New listings see a small uptick, but inventory remains at record low
New listings increased by 0.8% month over month in August, marking the second slight uptick on a seasonally adjusted basis after almost a year of declines. They were down 14.4% compared to a year ago.
Source: Redfin
New listings have likely bottomed out. 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.
New listings saw the biggest annual declines in—
- Hartford (-46.7%)
- Allentown, PA (-46.6%)
- New Haven (-38.8%)
Five metros posted an annual increase in new listings, led by—
- North Port (6%)
- McAllen (2.4%)
- Albany, NY (2.2%)
The total number of homes for sale dropped to a record low in August, falling 1.1% from the previous month on a seasonally adjusted basis. It fell 20.8% year over year—-the steepest annual drop since June 2021.
Source: Redfin
Home purchase cancellation rates by metro
While the national rate of home purchase cancellations reached 15.7% in August, the rate was significantly higher in some major U.S. metros.
Ten metros with the highest home purchase fall-through rates in August 2023:
- Jacksonville, FL (26.6%)
- Atlanta, GA (23.7%)
- Las Vegas, NV (23.6%)
- Fort Lauderdale, FL (23.1%)
- Orlando, FL (23.1%)
- San Antonio, TX (23.0%)
- Tampa, FL (22.4%)
- Fort Worth, TX (21.7%)
- Houston, TX (21.5%)
- Riverside, CA (21.1%)
Five metros with the lowest fall-through rates:
- San Francisco, CA (6.4%)
- San Jose, CA (6.6%)
- Nassau County, N (6.7%)
- Cincinnati, OH (8.0%)
- Montgomery County, PA (8.8%)
Read the full report for more details.
Takeaways for real estate agents
Having to back out of a home purchase isn’t a pleasant experience for anyone involved. And, while you can’t control mortgage rates and their impact on housing affordability, you can help your clients better understand the challenges they face and what can be done about them.
Ultimately, you want every one of your buyer clients to be confident of their ability to afford a home before they make an offer. But you also want them to feel empowered to withdraw if rates climb to the point where the monthly payment is no longer within their budget.
For their sakes, as well as your own, stay on top of the latest market trends by making the daily Hot Sheet an essential part of your morning routine.
