Finance News
Homebuyers are backing out of deals at a record rate as prices march higher
Would-be homebuyers are getting a case of cold feet as they confront still elevated mortgage rates and record-high housing prices.
New findings published by Redfin show that a growing number of buyers are backing out of deals to buy a house at the last minute because buying a home is more expensive than ever. About 56,000 home purchases were canceled in June – about 15% of homes that went under contract – the highest percentage of any June on record.
The median home sale price rose 4% in June to $442,525, the highest level on record. At the same time, the average 30-year mortgage rate was about 6.92%, more than double the pandemic-era lows.
HOME PRICES SMASHED ANOTHER RECORD IN JUNE AS SALES SLUMP
“Buyers are getting more and more selective,” said Julie Zubiate, a Redfin real estate agent near San Francisco. “They’re backing out due to minor issues because the monthly costs associated with buying a home today are just too high to rationalize not getting everything on their must-have list.”
Still, there are some signs that home prices may soon fall.
The Redfin report showed that one in five homes for sale saw a price cut, the highest level of any June on record. It marks a notable increase from the 14.4% pace seen one year ago and is just shy of the 21.7% record set in October 2022.
There are a number of driving forces behind the affordability crisis.
MORTGAGE CALCULATOR: SEE HOW MUCH HIGHER RATES COULD COST YOU
Years of underbuilding fueled a shortage of homes in the country, a problem that was later exacerbated by the rapid rise in mortgage rates and expensive construction materials.
Higher mortgage rates over the past three years have also created a “golden handcuff” effect in the housing market. Sellers who locked in a record-low mortgage rate of 3% or less during the pandemic began have been reluctant to sell, limiting supply further and leaving few options for eager would-be buyers.
Economists predict that mortgage rates will remain elevated for most of 2024 and that they will only begin to fall once the Federal Reserve starts cutting rates. Even then, rates are unlikely to return to the lows seen during the pandemic, with investors predicting just one or two rate reductions this year.
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“Some prospective buyers are simply waiting for mortgage rates to come down after the Federal Reserve cuts rates, most likely in September,” said Lisa Sturtevant, Bright MLS chief economist. “With inflation cooling and the job market still solid, rate cuts are now almost a foregone conclusion, which means those buyers who can wait are doing so.”
Most homeowners say they are nearly twice as willing to sell their home if their mortgage rate is 5% or higher, according to a Zillow survey. Currently, about 80% of mortgage holders have a rate below 5%.
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Housing supply jumps to 4-year high as homes sit unsold
The housing inventory shortage that has been plaguing the U.S. for years appears to finally be easing, but a significant factor behind what is driving up supply provides little encouragement that the stagnant market will get moving again anytime soon.
A new report from Redfin says the number of homes for sale jumped to a four-year high in November, surging 12.1% year over year. But the major reason for the increase is that most homes on the market just aren’t selling.
More than half (54.5%) of homes on the market last month had been listed for more than 60 days, with many deemed too expensive by would-be buyers. According to Redfin data, that is up 49.9% from a year ago, and is the highest share of stale inventory for a November since 2019.
The report said that the typical home that went under contract last month did so in 43 days, which is also the slowest November pace since 2019.
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“A lot of listings on the market are either stale or uninhabitable. There’s a lot of inventory, but it doesn’t feel like enough,” said Meme Loggins, a Redfin Premier real estate agent in Portland, Oregon.
“I explain to sellers that their house will sit on the market if it’s not fairly priced,” Loggins said. “Homes that are priced well and in good condition are flying off the market in three to five days, but homes that are overpriced can sit for over three months.”
MORTGAGE RATES RISE FOR SECOND STRAIGHT WEEK, HIGHEST SINCE JULY
The data shows Texas and Florida have the highest rates of old listings on the market. Miami has the greatest share of homes on the market for longer than 60 days than any other major metro at 63.8%, followed by Austin, which has 62.4% of listings that have sat for more than two months without going under contract.
The housing market saw a flurry of activity driven by high demand during the pandemic, but has become stagnant as soaring home prices and mortgage rates have led to an ongoing affordability crisis that has pushed homeownership out of reach for many Americans.
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Housing costs repeatedly broke records in 2024, and a report from the National Association of Realtors’ (NAR) annual survey of buyers and sellers found the share of first-time homebuyers dropped from 32% in 2023 to 24% in 2024, the lowest share since NAR began collecting data in 1981.
FOX Business’ Lindsay Kornick contributed to this report.
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