Across the U.S., roughly 64,000 home purchase agreements — equalling 15.2% of homes under contract — fell through in August.
That percentage is up from 12.1% a year ago and a little south of July’s revised rate of 15.5%.
And according to a new Redfin report, homebuyers in Sun Belt metros are backing out of home purchasing deals at the highest rates nationwide.
Why are more homebuyers backing out? And why is that happening more in Sun Belt metros than anywhere else?
Then and now
The percentage of homebuyers backing out of home purchase agreements has been hovering around 15% for the past three months. This is the highest rate on record except for March and April 2020, with the onset of the COVID pandemic.
Before the pandemic, that rate was around 12%, according to a Redfin analysis of data going back through 2017.
Sun Belt buyers backing out at the highest rate
During the pandemic, Sun Belt metros including Phoenix, Las Vegas, and Tampa experienced a surge in demand from buyers migrating to these areas. That uptick in demand drove up home prices.
Now, these metros are among the fastest-cooling markets in the country, giving homebuyers more flexibility to bow out.
Roughly 800 home purchase agreements in Jacksonville, FL, fell through in August, accounting for 26.1% of homes that went under contract that month—the highest percentage among the most populous 50 metros in the U.S.
The ten U.S. metros with the highest rates of homebuyers backing out:
- Jacksonville, FL (26.1%)
- Las Vegas (23%)
- Atlanta (22.6%)
- Orlando, FL (21.9%)
- Fort Lauderdale, FL (21.7%)
- Phoenix (21.6%)
- Tampa, FL (21.5%)
- Fort Worth, TX (21.5%)
- San Antonio, TX (21.1%)
- Houston, TX (20.6%)
All ten above are located in the Sun Belt, which grew in popularity during the pandemic. Four of them—Las Vegas, Phoenix, Tampa, and San Antonio—have consistently made Redfin’s list of most popular migration destinations.
These areas attracted migrating homebuyers because of their relatively low home prices. But the increase in buyer demand caused a corresponding rise in home prices, making these areas less attractive, especially with mortgage rates and inflation on the rise.
Buyers in pricey coastal hubs least likely to back out
Homebuyers in pricey coastal areas are well aware of their markets’ relatively high home prices. They’ve seen buyers leave for more affordable homes in pandemic hotspots.
But now, with the market rebalancing and prices in popular Sun Belt destinations making them less affordable than before, coastal hubs like San Francisco and New York are making a comeback.
Many of those with the lowest cancellation rates saw buyers leave during the pandemic to work remotely from more affordable locations. As workers return to the office after months of working remotely, finding a home within a manageable distance has become a higher priority.
The top ten metros with the lowest rates of homebuyers backing out:
- Newark, NJ (2.7%)
- San Francisco (4.2%)
- Nassau County, NY (6.1%)
- New York (7%)
- Montgomery County, PA (7.6%)
- San Jose, CA (8.2%)
- Milwaukee (8.9%
- Oakland, CA (9.2%)
- Boston (10.1%)
- Seattle (10.3%)
Why are more buyers backing out?
Less competition means buyers don’t feel pressured to waive contingencies that give them an out if issues arise with the house or their financing.
Some buyers may also be backing out for fear home prices will fall and leave them underwater with their equity. The rise in mortgage rates is also a factor since buyers who can get qualified are faced with a monthly mortgage payment hundreds of dollars more than they would have paid in 2021.
The average 30-year fixed-rate mortgage hit 6.29% last week, increasing the typical homebuyer’s monthly mortgage payment by 45% compared to a year ago.
Top takeaways for real estate agents
More homebuyers are backing out of home purchase agreements—because they can and because many are faced with higher mortgage payments, not to mention inflation driving up other costs.
But that extra flexibility is a good thing. Prospective buyers are more likely to look at a new home if they know they have some negotiating power and can still walk away should issues arise.
Use the data for your market to encourage prospective buyers and reassure sellers. A more balanced market can benefit both.