Record Number of Homebuyers Cancel Sales Agreements in January

Nearly 40,000 prospective homebuyers backed out of transactions that were under contract in January, the highest rate of cancellations for the initial month of the year since 2017, online real estate brokerage Redfin reported on Feb. 24.

About one in seven sales in the United States fell through in January due to financial uncertainty and buyers exploring different options after initiating sales agreements, said Redfin, which analyzed pending sales data from the Multiple Listing Service for its findings.

Many pending sales contracts are falling through because buyers are backing out after issues arise following home inspections, Redfin said. Other times, the brokerage added, buyers simply find a home they like better because there are far more sellers than buyers in the current residential sales market, which gives greater negotiating power and increased housing options for homebuyers.

Financial uncertainty and high housing costs are also behind the spate of contract cancellations, Redfin noted.

Alin Glogovicean, a Redfin agent in Los Angeles, said many buyers are questioning the large financial commitment that comes with taking on a home mortgage.

“More buyers are backing out,” Glogovicean said in a statement. “That’s particularly true when they’re first-time buyers who don’t have equity from a previous home sale, and they’re using most or all of their savings on a down payment.”

Contract cancellations could ease in the coming months as prospective homebuyers enjoy increased buying power from lower mortgage rates, which ticked down on Feb. 23 to 5.99 percent for a 30-year fixed mortgage, Mortgage News Daily reported.

Mark Hamrick, senior economist for Bankrate, said in a statement provided to The Epoch Times that although mortgage rates have declined, the housing market remains in a deep freeze.

“We are trapped in an affordability paradox: borrowing is getting cheaper, but a 50% surge in prices since 2020 and a massive supply shortage are keeping the American dream out of reach for many,” Hamrick said.

“Americans still regard homeownership as key to the American dream, but many are having to wait because of affordability challenges. It remains true that ownership is the primary path to wealth creation in the United States.”

Homebuyers also are choosing to stay in their residences due to low pandemic-era mortgages of around 3 percent, Hamrick added.

The bulk of contract cancellations is in large metropolitan regions. In San Antonio, Texas, for example, just over 21 percent of pending home sales fell out of contract in January. Cancellations were highest in Atlanta, Georgia (18.5 percent), Cleveland, Ohio (178.9 percent), and Riverside, California (17.5 percent), Redfin said, because of the high ratio of sellers to buyers.

On the other end of the spectrum, San Francisco had the fewest number of pending sales cancellations at 3.5 percent. Cancellations also were minimal in Nassau County, New York (4.8 percent), San Jose, California (5.3 percent), and Milwaukee, Wisconsin (7.6 percent).