Ahead of fresh data on new home sales and home prices this week, there are signs that new homebuyers are backing out of sales.
Amid higher interest rates and a softening housing market, home purchase cancellations were above 15% for the second straight month. Last month about 64,000 agreements or 15.2% were cancelled, compared to 15.5% in July, according to real estate firm Redfin. A year ago, just 12% of purchases were canceled. The average rate on a 30-year fixed-rate mortgage is now 6.3%, up from about 3.2% in early January, according to Freddie Mac.
The highest cancellation rates were found in “pandemic boomtowns” located in the Sun Belt states. All 10 cities with a back-out rate of 20% or higher were located in the Sun Belt.
Jacksonville, Florida outpaced all other cities with 26.1% of pending sales dropping out of contracts in August. Las Vegas, Nevada ranked second with 23% cancelling contracts, followed by Atlanta at 22.6%, Orlando at 21.9% and Fort Lauderdale at 21.7%.
“Investors have clearly thrown in the towel on housing stocks, as the S&P Homebuilders Index (XHB) is down 37%, led by steep losses in stocks like Toll Bros. (TOL), D.R. Horton (DHI), and Pulte Group (PHM),” said Caleb Silver, editor-in-chief of Investopedia.