The housing market is not a pretty thing right now.
Soaring prices and mortgage rates have made homes unaffordable for many buyers, and sales are falling as a result.
Here’s the latest piece of bad news: 60,000 home-purchase agreements collapsed in June, equal to 14.9% of homes that went under contract in the month, according to real estate brokerage Redfin. (Keep in mind that not all the contracts that tanked in June were signed in June.)
That’s the highest percentage since Redfin began compiling the data in 2017, except for March and April 2020. That’s at the beginning of the covid pandemic, when the housing market nearly froze.
The percentage totaled 12.7% in May and 11.2% in June 2021.
“Rising mortgage rates are forcing some buyers to cancel home purchases,” Redfin’s deputy chief economist, Taylor Marr, said in a statement.
“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.”
But there is a silver lining to the contract cancellations. “The slowdown in housing-market competition is giving home buyers room to negotiate, which is one reason more of them are backing out of deals,” Marr said.
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“Buyers are increasingly keeping rather than waiving inspection and appraisal contingencies. That gives them the flexibility to call the deal off if issues arise during the homebuying process.”
As for mortgage rates, the 30-year fixed-rate mortgage did drop in the week ended June 7 — to 5.3% from 5.7% a week earlier, according to Freddie Mac. But the latest figure still represents a jump from 2.9% year ago.
“Over the last two weeks, the 30-year fixed-rate mortgage dropped by half a [percentage point], as concerns about a potential recession continue to rise,” Sam Khater, Freddie Mac’s chief economist, said in a statement.
Another Positive Possibility
But he, too, sees a possible upside for the housing scenario.
“While the drop provides minor relief to buyers, the housing market will continue to normalize if home-price growth materially slows due to the combination of low housing affordability and an expected economic slowdown.”
Turning to prices and sales, the median price for existing-home sales totaled $407,600 in May, up 14.8% from May 2021, according to the National Association of Realtors. Year over year, prices have climbed for 123 straight months, or more than 10 years, a record.
The price surge has helped to depress sales. Existing-home sales slid 3.4% in May from April and 8.6% from May 2021.
“Home sales have essentially returned to the levels seen in 2019 – prior to the pandemic – after two years of gangbuster performance,” NAR’s chief economist, Lawrence Yun, said in a statement.
“Further sales declines should be expected in the upcoming months, given housing-affordability challenges from the sharp rise in mortgage rates this year.”