The housing market is starting to feel the effects of rising costs and falling confidence. A growing number of buyers are backing out of deals they have made with homebuilders.
According to surveys, the cancellation rate for homebuilders has more than doubled since April. In July, 17.6% of builder contracts fell through, compared with 8% in April and 7.5% in July 2020.
Texas and the Southwest have seen the biggest jumps in builder cancellation. Many Americans migrated to the Southwest during the Pandemic. The average cancellation rate in Northern California and the Northwest is higher than the national average.
Some buyers can't close on their homes because they can't qualify for a mortgage at a higher rate. Mortgages are calculated before a home is built.
Some buyers are walking away from their agreement because of concerns about inflation and the potential for home values to fall. State laws vary on the requirement for builders to refunds cash deposits.
California buyers can walk from the closing table and get a refunds. There is a lot of flexibility on what builders need for cash deposits and they can choose to be more or less strict in refunds.
Contracts on existing homes are the same as with new homes. In July, about 63,000 of those agreements fell through, or about 16 percent of homes that went under contract. In the month of July, there were 12 cancelations.
The sellers are losing more than the buyers when there is a cancellation. The buyers can keep the binder deposit if they cancel within the due diligence period. The sellers are losing time on the market as they have to change the status of their listing from active to contingent.
Florida saw a huge influx of buyers during the first year of the Pandemic and saw some of the strongest home price appreciation in the nation.
Almost 30% of homes in Jacksonville went under contract in July, which was the most in the state. Las Vegas and San Antonio had some of the highest cancellation rates.
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