Canceled home sales are on the rise in Dallas-Fort Worth as rising mortgage rates spur some would-be-buyers to back out of their home purchase.
Pending home sale transactions are starting to fall through across North Texas, according to a new report from Redfin. In August, Redfin found that 19.7% of pending home transactions in Dallas were canceled, while 21.5% fell through in Fort Worth. This equates to roughly 1 In 5 DFW homebuyers backing out of a deal to buy a home.
With the post-pandemic influx of homebuyers decelerating across much of the nation, major U.S. cities are beginning to see an increase in home cancellations.
“House hunters today are taking their time and exploring their options, whereas six months ago, they had to act quickly and pull out every stop to compete because homes were selling almost immediately,” Redfin real estate agent Tzahi Arbeli said in the report.
“Homebuyers now will agree to buy a house and be doing the inspection, and then back out because they found another home they love more,” he continued.
The report highlights that the Sun Belt cities – Phoenix, Tampa, and Las Vegas – were the nation’s top housing markets for home sale cancellations in August.
These cities attracted scores of homebuyers during the pandemic, prompting a meteoric rise in home prices. Now, the Sun Belt cities are among the fastest-cooling markets in the country, according to Redfin. San Francisco and New York had the lowest rate of cancellations.
“Including inspection, financing, and appraisal contingencies in a contract means a buyer can cancel their purchase if there’s an issue with the home, they can’t get a mortgage, or the appraisal is different from the agreed-upon amount,” the report said. “Some buyers may also be backing out of deals because they’re waiting to see if home prices fall.”
Nationwide, roughly 64,000 or about 15.2% of home-purchase agreements fell through in August, up from 12.1% a year earlier, according to the report.
The percentage has now hovered around 15% for the past three months, per the report. This is the highest level on record with the exception of March and April 2020, when the pandemic brought the housing market to a standstill. Before the pandemic, it was consistently around 12%.
A climbing mortgage rate could be one reason for the increasing rate of canceled home contracts. The average 30-year-fixed mortgage rate increased from 2.88% in September of 2021 to 6.29% a year later. The 30-year-fixed mortgage rate currently stands at the highest rate since 2008, according to Freddie Mac.
This means a typical homebuyer’s monthly mortgage payment is up roughly 45% from a year ago. For example, the monthly payments on a $300,000 home loan would have jumped from about $1,260 to $1,750 with taxes and insurance, according to Bankrate’s mortgage calculator.
