A case of cold feet: why buyers are canceling purchase agreements

Home buyer hesitancy is growing, as the rate of purchase contract cancellations reached record levels during June, a Redfin survey found.

Last month alone, 56,000 home purchase agreements were voided, 14.9% of properties that went under contract that month. That is the highest percentage of any June on record.

The main factor contributing to buyers' cold feet is an unaffordable housing market. June's median home sales price rose 4% year-over- year to $442,525, while the average interest rates hovered around 6.9%. 

The top three metro areas with the highest rate of home-purchase cancellations were located in Florida, Redfin found. Buyers in Orlando had the highest rate of cold feet with close to 900 home purchase transactions being nicked, accounting for 20.8% of homes that entered into contracts last month. Following closely behind were Jacksonville (20.5%), Tampa (20.5%), Las Vegas (20.2%) and San Antonio (19.9%).

"We're seeing nightmare scenarios where deals are getting canceled at the last minute for the most minute reasons," Rafael Corrales, a Redfin agent in Miami, said in a written statement. "Buyers often back out during the inspection period because they find something they don't like, but affordability is really the underlying issue."

"I don't want my buyers to be surprised by all of the expenses that come with owning a home in Florida, so I advise them to proactively research the hefty costs of insurance, property taxes and HOA fees, in addition to the cost of their mortgage payment," he said.

Julie Zubiate, a real estate agent in the San Francisco Bay Area, said she's seeing "buyers…getting more and more selective." 

"They're backing out due to minor issues because the monthly costs associated with buying a home today are just too high to rationalize not getting everything on their must-have list," she added.

Buyers' hesitation of purchasing real estate is one of the reasons why homes are lingering on the market for longer. About one in five, 19.8%, of homes for sale underwent a price reduction as a result.

A typical home that sold last month sat 32 days on the market, up three days from a year earlier, Redfin said.

"Listings are piling up as a result; active listings, or the total number of homes for sale, were little changed from a month earlier but jumped 12.8% from a year earlier—the largest annual gain on record," Redfin's report stated.

Possible relief may be on the way for the housing market and buyers, as the Federal Reserve has signaled that there may be an interest rate cut sometime in the fall, with most bets on that happening at the September meeting.