Prospective homebuyers are being scared off by rising mortgage rates.
Homebuyers are canceling pending housing contracts at the highest rate since the start of the COVID-19 pandemic, meaning the once-booming housing market could now be slowing down.
Real estate brokerage company Redfin reports that roughly 60,000 home purchases—or 14.9%—nationwide fell through in June. For comparison, the cancelation rate for May 2022 was 12.7%, and for June 2021 was 11.2%.
Part of the reason for the canceled contracts is that the higher mortgage rates are disqualifying many buyers. “It’s taking a lot of buyers who typically would qualify out of qualifying for their home loans,” says Redfin senior agent Shonn McCloud.
McCloud says the buyers want the homes—they just cost too much. And it isn’t necessarily the purchase price that is the biggest problem for buyers—it’s the monthly obligation.
Mortgage News Daily states that the average rate on the 30-year fixed mortgage started this year around 3% and then began rising steadily. It briefly shot above 6% in mid-June before settling in a narrow range around 5.75% now. At 3%, the monthly payment on a 30-year fixed, $200,000 mortgage is $843. Bump that to 6%, and the monthly nut is $1,199.
“People are not pleased when they see a $3,000 mortgage per month versus their original quote, which would have been at $2,100 or $2,200,” McCloud says.
“The slowdown in housing-market competition is giving homebuyers room to negotiate, which is one reason more of them are backing out of deals,” says Redfin economist Taylor Marr.
With inflation showing no sign of slowing down, the Federal Reserve is likely going to continue to raise interest rates, adding even more costs for new homebuyers.