Home Sales See Record July Cancellations As High Mortgage Rates Weigh On Buyers

Authored by Tom Ozimek via The Epoch Times,

A growing share of U.S. home sales collapsed in July as wary buyers pulled back, underscoring the strain of elevated mortgage rates despite a modest uptick in overall existing-home sales.

Roughly 58,000 purchase agreements fell through last month, equal to more than 15 percent of homes that went under contract, according to real estate brokerage Redfin. That’s the highest cancellation rate for July since the company began tracking the data in 2017.

Texas and Florida saw the most scrapped contracts, with San Antonio topping the list at nearly one in four deals canceled. Florida metros, including Fort Lauderdale, Jacksonville, and Tampa, also recorded some of the highest cancellation rates.

Real estate agents say buyers are taking advantage of a market where listings linger longer, giving them time to keep shopping or back out during inspections.

The most common reasons buyers back out are cold feet, high standards, and inspection issues, according to Bonnie Phillips, a Redfin agent in Cleveland.

She added that cancellations are especially common in borrowers using Federal Housing Administration loans and Department of Veterans Affairs loans, who can face more financing hurdles.

The cancellations came alongside a small uptick in overall sales. The National Association of Realtors (NAR) reported on Aug. 21 that existing-home sales rose 2 percent in July to an annual rate of just over 4 million units, up slightly from June’s nine-month low.

“The ever-so-slight improvement in housing affordability is inching up home sales,” NAR chief economist Lawrence Yun said in a statement.

“Wage growth is now comfortably outpacing home price growth, and buyers have more choices.”

Still, affordability remains the biggest challenge. The median existing-home price stood at $422,400 in July, barely changed from a year earlier, according to NAR data. Mortgage rates averaged 6.7 percent in July, more than double what buyers could lock in three years ago.

The strain is also evident among homebuilders.

A closely watched gauge of builder sentiment from the National Association of Home Builders (NAHB) fell in August to its lowest level in more than two-and-a-half years. More than a third of builders reported cutting prices by an average of 5 percent, while two-thirds offered incentives such as help with closing costs to attract wary buyers.

“Affordability continues to be the top challenge for the housing market, and buyers are waiting for mortgage rates to drop to move forward,” NAHB Chairman Buddy Hughes said in a statement.

“Builders are also grappling with supply-side headwinds, including ongoing frustrations with regulatory policies connected to developing land and building homes.”

Construction data point to the same slowdown. Government figures showed single-family housing starts fell in June to an 11-month low, while permits for future construction sank to the lowest level in more than two years. July data, however, showed some improvement.

Mortgage rates have eased slightly in recent months, trimming typical monthly payments and boosting purchasing power for some buyers. Markets widely expect that the Federal Reserve will cut rates soon—but analysts warn that mortgage rates won’t necessarily follow the Fed’s rate down if inflation remains elevated.

“A Fed rate cut does not mean lower mortgage rates. With inflation still sticky, mortgage rates could remain elevated even if there is a cut,” Lisa Sturtevant, chief economist at real estate data company Bright MLS, said in a recent commentary.

“Prospective home buyers who have been waiting for mortgage rates to come down may continue to be disappointed.”

Sturtevant noted that after years of higher prices for everyday goods and rising consumer debt, households have become increasingly cautious about taking on a mortgage.

“As a result, as we head into fall, more and more would-be buyers are going to decide to hold off and push their home buying out to 2026 when the economy may be more certain, inflation may come down, and rates may be lower,” she said.