Why Are More Home Sales Falling Through? A Look at Rising Contract Cancellations

In June, 14.9% of pending home sales nationwide were canceled, the highest rate for that month since 2017. This increase from 13.9% a year ago signals a significant shift in the U.S. housing market, driven by a buyer's market that grants purchasers more leverage and choice. Key reasons for the rise in failed transactions include buyers finding better properties, concerns over high costs, and economic uncertainty.

What is Causing the Increase in Cancellations?

The primary driver is the emergence of a clear buyer's market. With more homes for sale than active buyers, purchasers have the upper hand. They can afford to be selective and may back out of a contract during the inspection period—a set timeframe after an offer is accepted where the buyer can conduct inspections and negotiate repairs or withdraw without penalty—if a more desirable property hits the market.

Financial concerns are another major factor. Despite a slight dip, monthly mortgage payments remain near all-time highs alongside record home-sale prices. Some buyers experience "sticker shock" and cancel when the reality of the long-term financial commitment sets in. Based on our experience assessment, economic worries about inflation, potential recessions, and tariffs also contribute to cold feet.

Which Metro Areas Are Most Affected?

The trend is not uniform across the country. Sun Belt metros, particularly in Florida and Texas, are experiencing the highest cancellation rates. This is partly due to a high volume of new construction, which increases inventory and gives buyers even more alternatives. Additionally, soaring home insurance costs related to natural disasters are causing some buyers to reconsider.

The table below shows the metros with the highest and lowest cancellation rates for June:

Source: Redfin analysis of MLS data for June.

How Are Sellers Responding to This Trend?

In this competitive environment, sellers are becoming more flexible to keep deals from falling apart. Unlike the recent seller's market, where they could easily move on to another buyer, sellers today are more willing to negotiate. This includes agreeing to repair requests discovered during inspections or even offering price reductions to secure the sale and avoid having to relist the property.

Practical Advice for Buyers and Sellers

For buyers, the current climate offers a unique advantage. Use the inspection period diligently to uncover any potential issues with the property. Don't hesitate to negotiate with the seller for repairs or concessions. However, it's crucial to be pre-approved for a mortgage and have a firm understanding of your budget to avoid financial surprises.

For sellers, pricing your home competitively from the start is more important than ever. Consider pre-listing inspections to identify and address problems upfront, making your home more attractive. Be prepared to negotiate in good faith to close the deal.

The key takeaway is that the market dynamics have shifted, empowering buyers but requiring sellers to be more accommodating. Understanding these trends can help both parties navigate transactions more successfully in today's climate.