The cancellations have two causes: With today’s higher interest rates, some potential buyers simply cannot afford the mortgage payments necessary to close on the homes once they are built. (Most mortgages included in construction contracts are determined before construction begins.)
And some buyers are backing out entirely due to worries about inflation and falling home prices. This often means forfeiting a sizable deposit, but the law in your state may require builders to return your money. “California buyers can pretty much walk from the closing table and get a refund,” said Jody Kahn, senior vice president of research at JBREC. Furthermore, “builders have a lot of leeway on what they require for cash deposits, and they can choose to be more or less lenient in refunding.”
With contracts on pre-existing homes, the situation is essentially the same. According to Redfin, approximately 16% of homes that went under contract in July fell through. This amounts to approximately 63,000 contracts nationwide. In July of 2021-2, cancellation rates were 12.5%.
When cancellations occur, “the sellers are losing more than the buyers are,” said Redfin agent Heather Kruayai. “The buyers are exercising their right to cancel during the due diligence period and keep their binder deposit. As a result, the sellers lose market time every time they switch their listing’s status from “active” to “contingent accepting backups.””
Florida, which experienced the highest home price appreciation and the largest influx of buyers during the first year of the pandemic, also has the highest rate of cancellations on existing homes.
Around 800 agreements were canceled in Jacksonville in July, representing 29.3 percent of homes that went under contract. In addition to Las Vegas and San Antonio, some of the cities with the highest cancellation rates were Orlando, Daytona, Palm Bay, and Pensacola.
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