Jacksonville Leads US in Pullouts by Potential Homebuyers

Buyers are flexing out of home-purchasing plans in markets that had seen the greatest run-up in prices in the past year or so: Phoenix, Tampa and Las Vegas.

Nationwide, roughly 64,000 home-purchase agreements fell through in August, equal to 15.2% of homes that went under contract that month.

The percentage hovering around 15% for the past three months is the highest level on record except for March-April 2020, when the onset of the pandemic wrecked the housing market.

Redfin ranked Jacksonville, Fla., tops with approximately 800 home-purchase agreements (or 26.1%) of contracts called off among those signed in August.

That’s up from 12.1% a year earlier and is comparable with July’s revised rate of 15.5%, according to a new report from Redfin.

Las Vegas-based Redfin real estate agent Tzahi Arbeli said in prepared remarks that “homebuyers now will agree to buy a house and be doing the inspection, and then back out because they found another home they love more.”

Surging mortgage rates may also be a factor. The average 30-year-fixed mortgage rate hit 6.29% last week—the highest since 2008—sending the typical homebuyer’s monthly mortgage payment up 45% from a year ago.

Second Homes, Investor Homes Driving Results

Christina McCollum, loan officer with Churchill Mortgage, tells GlobeSt.com that second homes and investment properties were slapped with loan-level pricing adjustments (LLPA), which happens when risk in the market is high for investors seeking to purchase loans on the servicing side.

“I would wager that the Sun Belt markets just have a higher percentage of second homes and investment purchases, and the increase in LLPA rates made things much less affordable for this type of buyer,” McCollum said.

As an example, when a second home was purchased in September 2021 in Pensacola, Fla., at the time there was no LLPA (yet) so the rate was 3.25% when primary homes could have been given a 2% to 3% rate.

If you fast forward 12 months and make that same purchase now, the down payment is likely to be about 25% to 30%, significantly higher than the 15% to 20% spread that was typically sought for a second home or investment purchase one year ago, she said.

Additionally, the new rate of interest this year over last is anywhere from 7.5% to 9% or more for investment homes, and 6.5% to 7.5% for second homes, she said.

“Rapid interest rate and LLPA hikes such as those we’ve seen recently can price investors out of the market,” according to McCollum. “If certain parts of the country have seen more overall activity in the secondary and investment home markets in recent months, then it’s not surprising these same areas may have a higher back-out rate now.”

Prices Were Not Sustainable

Shannon Livingston, president at RREAF Communities, tells GlobeSt.com that the home price increases these areas were experiencing were not sustainable.

“The current market cooling was overdue and will help bring the market back into equilibrium,” Livingston said. “Housing prices will have to continue to drop to balance rising interest rates and get homebuyers back to par.

“Affordability is relative. Home prices and the corresponding incomes needed to purchase have increased dramatically, but the Sunbelt remains an affordable alternative to coastal markets. Places like Texas are continuing to see significant in-migration of people and industry that will fuel a housing shortage for years to come.”

Other Perspectives

• Tracey Ryniec, equity strategist at Zach’s, last week tweeted that KB Homes, despite having a strong quarter when it recently reported earnings, said that the company had a 9-month home cancellation at 35% compared to 9% a year ago and it expects orders to be down 50% next quarter.
• Bill McBride, author of the Calculated Risk blog, said Monday that for home market watchers, “the bottom line is – with rapidly rising cancellations – the Census Bureau will overestimate sales [when it reports on Tuesday] and underestimate new home inventory.