Homebuyers Get Cold Feet

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.