About 60,000 home-purchase agreements throughout the country fell through in June 2022, roughly equivalent to 14.9 percent of the homes that were under contract that month, compared with 12.7 percent in April and 11.2 percent in June 2021.
The housing market has taken a hit in recent weeks as the Federal Reserve continues to raise interest rates in an effort to control high inflation.
Housing Bubble Could Burst
Some analysts are expecting a collapse in the real estate market in 2022, as the economy begins to slow and mortgage rates rise rapidly due to interest rate hikes.“The slowdown in housing-market competition is giving homebuyers room to negotiate, which is one reason more of them are backing out of deals,” said Redfin Deputy Chief Economist Taylor Marr in the company’s report.
“Buyers are increasingly keeping rather than waiving inspection and appraisal contingencies,“ Marr said. ”That gives them the flexibility to call the deal off if issues arise during the homebuying process.”
“Rising mortgage rates are also forcing some buyers to cancel home purchases. If rates were at 5% when you made an offer, but reached 5.8% by the time the deal was set to close, you may no longer be able to afford that home or you may no longer qualify for a loan,” Marr concluded.
Even during a regular peak sales season, deals can fall through for a variety of reasons.
In June 2021, at the height of the housing boom, the number of canceled transactions equaled roughly 11 percent of contracts signed that month.
However, the current situation is showing signs of a downturn, with even booming states like Texas beginning to feel a home sales crunch.
Minor Reprieve in July
Some buyers found relief in early July, when the average 30-year fixed mortgage rate fell to 5.3 percent in its largest one-week drop since 2008 during the housing bubble crash.On the other hand, the average rate for a 30-year fixed loan has nearly doubled since the start of 2022.
Still, the sudden runup in borrowing costs since the end of the first quarter of 2022 is quickly cooling down the once hot market.
The real estate market is in a better position than it was in 2008, and most experts are not expecting a similar crash on that scale.
“When mortgage rates shot up to almost 6 [percent] in June, we saw a number of buyers back out of deals,” Lindsay Garcia, a Miami-based Redfin real estate agent, said in the report.
“Some had to bow out because they could no longer get a loan due to the jump in rates,“ she said. ”Buyers are also more skittish than usual due to economic uncertainty.”
