A sizable share of pending home sales were canceled in January across the United States as factors such as high housing costs and uncertainty about the economy weighed on buyers’ minds, according to real estate brokerage Redfin.
The company said about 41,000 home-purchase agreements fell through in January, which equated to 14.3 percent of homes that went under contract that month.
Excluding the period at the start of the pandemic, pending home sales also fell to their lowest level on record, it added.
The brokerage said prospective homebuyers are now “skittish” due to rising supply and falling demand, economic uncertainty, and sticker shock.
“More supply and less demand means the housing market has tilted in buyers’ favor, with some house hunters backing out during the inspection period because a better house for them has come along—or at least the promise of a better house.”
Deals are falling through because buyers, as well as certain sellers, are getting cold feet due to unpredictability, the brokerage said, with factors including federal policy changes, layoffs, and tariffs.
Moreover, residential properties have become expensive for most buyers, with home prices and mortgage rates remaining “stubbornly high.” The costs and economic uncertainty are making some would-be buyers change their minds.
Out of the 50 most populous U.S. metros, Atlanta ranked first in terms of canceled deals, with almost one in five pending home sales in January getting canceled. This was followed by Orlando, Las Vegas, Houston, and Jacksonville, Florida.
“I’m seeing more homebuyers back out of deals than usual, and I’m hearing the same from other agents and mortgage lenders in the area,” said Sam Brinton, a Redfin agent in Salt Lake City, Utah. “Some buyers are getting cold feet with everything going on in the world.”
“But even with more cancellations, there are also more buyers out there in general. The nice homes in desirable locations are selling quickly, and those buyers are less likely to cancel.”
On a monthly basis, the Midwest, South, and West registered losses in transactions, with the South seeing “the most significant drop.” The Northeast reported a modest increase.
“It is unclear if the coldest January in 25 years contributed to fewer buyers in the market, and if so, expect greater sales activity in upcoming months,” said National Association of Realtors Chief Economist Lawrence Yun.
Elevated Mortgage Rates
Mortgage rates have been hovering around the 7 percent level for some time. For the week ending Feb. 27, the weekly average rate on a 30-year fixed-rate mortgage was 6.76 percent.“The drop in mortgage rates, combined with modestly improving inventory, is an encouraging sign for consumers in the market to buy a home.”
“So, should homebuyers expect rates to come down in time for the spring housing market? It seems likely that rates will fall in the weeks ahead, though they are still not expected to come down significantly,” she wrote.
“A severe shock that leads to an economic recession could bring rates down faster, but that seems very unlikely at the moment. Rather, consumers should accept rates that are volatile week-to-week, but that are gradually moving lower.”
A decline in the U.S. Federal Reserve’s benchmark interest rate can add downward pressure on mortgage rates as well.
