Homebuyers backing out of contracts at highest rate since start of pandemic

An economist says it’s the 1st sign since 2020 that the real estate market is returning to normal

JACKSONVILLE, Fla. – Homebuyers are backing out of their contracts at the highest rate since the start of the coronavirus pandemic, according to a new analysis.

The study by the real estate brokerage Redfin reveals that about 15% of all homebuyers nationwide had a case of cold feet for one reason or another in the month of June.

“That’s the highest percentage on record with the exception of March and April 2020, when the housing market all but ground to a halt due to the onset of the coronavirus pandemic,” Redfin said.

Seven months ago, the real estate company Zillow ranked Jacksonville as the second hottest housing market in the United States, behind Tampa. North Florida homes were being sold for tens of thousands of dollars more than they were actually worth, and these homes stayed on the market for only a matter of hours — which is currently not the case.

In fact, in Redfin’s June report, 25.3% of Jacksonville buyers had a change of heart and backed before closing, leaving the house to someone else.

Florida Atlantic University real estate economist Ken H. Johnson says it’s the first sign since 2020 that the real estate market is cooling off and returning to normal.

“You’ll see a lot of people getting very nervous that I’ve purchased at or near the top of the market, and perhaps now maybe I have a chance to get out of this agreement because of a low appraisal or a high-interest rate that doesn’t allow me to qualify for the moment,” Johnson explained.

According to Redfin, Jacksonville is the fifth largest metro market where buyers are backing out — only beat out by Port St. Lucie, Cape Coral, Lakeland and Las Vegas.

Redfin reports that nationwide, roughly 60,000 home purchase agreements fell through in June — which is equal to 14.9% of homes that went under contract that month.

Johnson says the days of guaranteed bidding wars between buyers and homes being sold for more than they are appraised could be numbered after the Federal Reserve raised mortgage interest rates.

“What drives that, historically, has been financing, contingencies, inspection or due diligence contingencies. And very often, it is just the buyers getting cold feet, and there is a low earnest money deposit, and you’ll see buyers withdraw. They get cold feet. They just worry. That’s a natural human tendency,” Johnson said. “So again, we’re all coming back to the way we’ve been doing business for years and years.”

Realtors tell News4JAX that if the Fed raises interest rates again, there is a possibility that existing home values could eventually take also take a dip in Florida.

But in a state that’s expected to see more 2.2 million new residents over the next 10 years, Johnson points out there’s still a very significant housing shortage that will help keep the real estate market competitive.

“We’re not building units for home ownership fast enough, new units fast enough, in the state,” Johnson said.

Also, keep in mind that mortgage rates shot up almost 6% in the month of June alone — which coincides with the rising numbers of buyers changing their minds. Economists say there is a lot of economic uncertainty right now. The good news for buyers is that if they can afford to buy a new home now, there are finally opportunities to find a house they like and perhaps even — once again — a deal.

About the Author:

Tarik anchors the 4, 5:30 and 6:30 p.m. weekday newscasts and reports with the I-TEAM.