Real estate firm Redfin reports 12% of homes that were under contract and waiting to close in July in the D.C. area were canceled, and recent changes in the market are the reason.
A rapid rise in mortgage rates means some buyers may no longer qualify for the mortgage they were approved for when they started looking for a home to buy several months ago. A 30-year fixed-rate mortgage averaged about 3.25% in January; it now averages 5.13% for the week ending Aug. 19.
A canceled contract is a disappointment for a buyer, but it can be terrible for a seller.
“It is very difficult for a seller to recapture momentum on a listing after it’s gone off the market, and then come back on the market,” said Corey Burr, at TTR Sotheby’s International’s The Burr Group in Chevy Chase, Maryland.
“Other buyers and buyer agents are going to wonder what went wrong with the transaction, and they are going to approach that property with less enthusiasm, and with a potential stigma to it.”
Contracts are also being canceled because there is less competition among buyers, so buyers have a bit more control now.
“We’re in a much more equal market right now. And buyers are putting in contingencies that we typically see in a normal market. Those are inspections, appraisals, and financing contingencies,” Burr said.
Sellers had the upper hand on inspections for the past two years, knowing buyers were either unlikely to ask for one or unlikely to request that problems found by their inspector be addressed. With that changing, sellers should reset.
“The cost of doing those repairs for a buyer, or providing a seller’s credit to the buyer’s closing costs, will be much less expensive than having to go back on the open market and trying to capture the same price they had originally,” Burr said.
There are 21% fewer home showings going on in the D.C.-area market than a year ago, and 24% more homes listed for sale.
The number of homes for sale that have been on the market for more than three weeks is the highest in more than two years.