Deal’s off: Homebuyers backing out of contracts as interest rates rise

Rising interest rates deter potential homebuyers who are opting to stay put

The once-hot housing market is beginning to cool down, but experts said homebuyers are canceling pending contracts at the highest rate since the start of the COVID-19 pandemic.

The once-hot housing market is beginning to cool down, but experts said homebuyers are canceling pending contracts at the highest rate since the start of the COVID-19 pandemic.

Shonn McCloud, a lead senior agent with Redfin, said many potential buyers are backing out of deals because of rising interest rates.

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“It’s taking a lot of buyers who typically would qualify out of qualifying for their home loans,” he said.

Redfin reports show roughly 60,000 home purchases nationwide fell through in June. 24.5% of pending sales were cancelled in the Orlando Metro Area.

“That is a lot of deals that didn’t go through where typically almost every deal was closing,” McCloud said.

He said the problem is not that buyers don’t desire the homes — it just costs too much, especially with the burden of high gas prices and inflation.

McCloud said the home purchase price is not the biggest issue for buyers; it’s the monthly obligation.

“People are not pleased when they see ($3,000) mortgage per month versus their original quote, which would have been at ($2,100 or $2,200).

Despite the prices, McCloud said the industry is slowly moving into a buyers market.

As more people back out of deals, more houses are becoming available, and buyers have more power to negotiate.

“Now, they see that there is more homes on the market that are now competing with the homes that they are already under contract for,” McCloud said.

Buyers can pull out of their contracts and find a better deal elsewhere, according to McCloud. He advised sellers pay attention to timelines.

When hiring an agent, he urged sellers to make sure the financing contingency is ending well in advance of the closing date.

He added that sometimes buyers won’t find out whether they qualify for the loan right before the closing date, which could put sellers in a tight spot.

McCloud said if interest rates increase again, it will be detrimental to the housing market. He explained there will not be many people pulling out of deals because they won’t be able to go under contract at all.

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About the Author:

Treasure joined News 6 at the start of 2021, coming to the Sunshine State from Michigan.