While median sale prices for homes sold in the U.S. are still at an all-time high, it appears that demand for housing may be cooling off. According to Redfin (NASDAQ:RDFN), home sales are getting cancelled at the highest rate since March of 2020. Last month, about 60,000 home-purchase agreements were called off. That’s equivalent to 14.9% of homes that went under contract that month. Excluding March and April of 2020, the percentage of terminations were the highest on record. A year ago, 11.2% of home-purchase agreements were cancelled, while that figure came in at 12.7% last month. Thus, the housing market may finally be starting to cool off.
Redfin’s Deputy Chief Economist Taylor Marr explained:
The slowdown in housing-market competition is giving homebuyers room to negotiate, which is one reason more of them are backing out of deals. 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.
Rising mortgage rates have also scared off prospective buyers. Let’s get into the details.
Redfin Reports Show That Housing Market May Be Cooling Off
Marr notes that rising rates play a big part in home-buying decisions. For example, if 30-year mortgage rates were 5% when a buyer made an offer, but increased to 5.8% by the time the offer was set to close, a buyer could potentially no longer be able to purchase that home or qualify for a loan. The national average for a 30-year fixed mortgage is currently about 5.6%.
In addition, rent increases seem to be slowing down as well. Last month, rent increases rose by 14.1% year-over-year (YOY). While that may seem steep, it represented the lowest YOY increase since last October. Compared to May, asking rents rose 0.7%, the lowest month-over-month gain since 2022 began. As of June, the average monthly rent is $2,016.
Redfin Chief Economist Daryl Fairweather added:
Rent growth is likely slowing because landlords are seeing demand start to ease as renters get pinched by inflation. With the cost of gas, food and other products soaring, renters have less money to spend on housing.
Still, areas that received an inflow of residents during the pandemic, like New York, are still seeing heavy increases in rent. The top three areas with the highest YOY rent increases are Cincinnati, Seattle, and Austin. On the other hand, the top three areas with the largest YOY declines in rent are Milwaukee, Minneapolis, and Kansas City.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.