Homebuyers are taking their purchasing power back — and that means sellers no longer rule the roost.
Across the country, 14.9% of homes that went under contract in June fell through due to buyer apprehension, real estate brokerage Redfin said in its home sales report. With the exception of March and April 2020 — a time when the coronavirus pandemic nearly brought the housing market to its knees — June’s reading was the highest percentage on record.
Since 2020, American home buyers have competed for the nation’s limited amount of housing inventory. The intense buyer competition has worsened an imbalance of supply and demand so severe, it’s made bidding wars a common fixture of homebuying. But as affordability puts a lid on demand, buyers are beginning to regain power — and that means they are no longer at the mercy of the nation’s home sellers.
“The slowdown in housing-market competition is giving homebuyers room to negotiate, which is one reason more of them are backing out of deals,” Taylor Marr, the deputy chief economist at Redfin, said in a statement. “Buyers are increasingly keeping rather than waiving inspection and appraisal contingencies. That gives them the flexibility to call the deal off if issues arise during the homebuying process.”
As buyers are given more flexibility to negotiate, deals in the housing market are now falling at the fastest pace since 2020. But while some deals are dropping off due to appraisal contingencies, a general lack of affordability is also to blame.
Data from the National Association of Realtors shows that housing affordability has plummeted by 29% over the last year – marking the steepest annual decline on record. The downturn is attributed to rapid mortgage rate and home price growth that has significantly quelled affordability. That’s because buyers of a median-priced home are now facing monthly mortgage payments that are more than $400 higher than they were in 2021.
“Rising mortgage rates are also forcing some buyers to cancel home purchases,” Marr said. “If rates were at 5% when you made an offer, but reached 5.8% by the time the deal was set to close, you may no longer be able to afford that home or you may no longer qualify for a loan.”
Historically low mortgage rates may have enticed millions of Americans to purchase homes over the last two years, but pandemic-era mortgage deals are over. As borrowing costs rise, it’s simultaneously priced out many would-be buyers, while giving others more freedom in the homebuying process. Whatever side of the coin you are on, one thing is clear — the grip that sellers had on the U.S. real estate market is finally loosening.
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