Consumer skittishness, wildfires and rising inventory combined to push the January cancellation rate for pending home sales to its highest in recent history, according to Redfin.
Approximately 41,000 purchase contracts fell through in January, representing 14.3%, or one out of every seven, pending transactions during the month, researchers at the real estate brokerage said. Based on analysis of multiple listing service data, the cancellation share increased from 13.4% in January 2024 and came in at its highest for the month since 2017 when Redfin first began tracking the data.
The brokerage's agents reported some deals failed to go through as buyers — as well as some sellers — held back over concerns about the nation's economic health
"Tariffs, layoffs and federal policy changes are among the factors contributing to an air of instability," the Redfin analysis said.
The current housing market, which is swinging toward buyers' favor amid increasing inventory and sluggish demand, is also leading some in the market to re-evaluate their choices and drop out during the inspection period if they perceive other options are available.
"Some buyers are getting cold feet with everything going on in the world. But even with more cancellations, there are also more buyers out there in general. The nice homes in desirable locations are selling quickly," said Salt Lake City-based Redfin agent Sam Brinton in a press release.
While the cancellation rate ran high for early in the year, it slowed from one month prior. Typical data will show the share more muted in January before skewing upward in the latter part of any given year. In December, the share of pending sales canceled was 15.7%.
Compared to previous spikes, 16.3% of deals were nixed in October 2022 when mortgage rates jumped above 7% for the first time in 20 years, Redfin said. In March 2020, the same month Covid-19 led to declaration of a national emergency, an even higher rate of 16.4% of pending sales fell through.
The Southeastern U.S. was more likely to see buyers drop out, with three cities ranking in the top five markets with the highest cancellation shares. Atlanta had a 19.8% rate, followed by Orlando, Florida, at 18.2%. Las Vegas was third at 17.9%, while both Houston and Jacksonville, Florida, reported a 17.8% share of buyers backing out of deals.
In January 2024, all five cities posted rates below 17%.
The disruption caused by early-year wildfires also led to the upturn in purchases falling through, according to the report. Hard-hit Los Angeles saw its share of canceled deals spike 2.7 percentage points to 15.9%, compared to 13.2% in January 2024.
Florida has also seen its share of natural disasters, which in combination with surging insurance costs, is leading to an abundance of homes available for sale.
"Some Florida buyers are backing out of deals because there's so much inventory available; in fact, there are more homes for sale in the state than ever before," Redfin said.
In total, 37 out of the 50 largest metropolitan areas saw their cancellation rate increase on an annual basis.
