As the housing market faces one of its biggest corrections in a decade, both new and existing home sales are facing high cancellation rates. Although the cancellation rate has declined since the end of 2022, the cancellation rate for new home construction is currently 9%, according to a recent survey by John Burns Research and Consulting.
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As of January 2023, the cancellation rate for new and existing homes was roughly 20%, Zonda Chief Economist Ali Wolf told Marketplace.org. There are many reasons why contracts for new homes or existing homes can fall through. Why are homes being canceled? And what can you do if this happens to you and your prospective buyers cancel the deal or if you are faced with canceling your home purchase?
Rising interest rates make homes under contract less affordable
Interest rates on 30-year mortgages are currently close to 7%. If you haven’t closed your mortgage rates, you may now find that your dream home is no longer affordable. If you have cash, you can try buying points on your mortgage to lower your interest rate, put more money down, or look for another mortgage company.
More options on the market
With home sales down since February, there are more homes on the market. This gives buyers more choice. If they had previously settled on a particular home, they might have found one they liked better, perhaps for less money.
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Problems found during inspections or assessments
Tight home inventory over the past few years has left many buyers making concessions, such as forgoing inspections or appraisals. Likewise, buyers were willing to forego negotiating repairs to entice sellers to accept their bid.
With home inventory slacking, coupled with higher mortgage rates, buyers are standing firm and canceling deals if an inspection or appraisal doesn’t meet their expectations. If you are selling your home and the buyer is considering getting out, you may be able to make some concessions to lower your selling price or make necessary repairs to close the deal.
Homeowners Insurance Cancellations and Price Increases
Homeowners and homebuyers in the South faced home insurance cancellations, sometimes even before the foreclosures. Rising homeowner insurance rates, along with rising mortgage rates, are making it more difficult for buyers to purchase a home that was previously financially affordable.
You can see if you can get more affordable home insurance by making some improvements, such as a new roof or fixtures. This can fall on the current home owner to insure the home for new buyers, or the new home buyer can do the updates.
It’s still a tough time to buy a home, even if average sales prices have been slowly declining since February. To secure the lowest mortgage rates available today, see if you can improve your credit score, lower your debt-to-equity ratio, and shop around to at least five different lenders before you lock in your rates.
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This article originally appeared on GOBankingRates.com. Housing Market 2023: What’s Driving Rising Home Cancellation Rates?