2023 began with an uptick in the sale of new homes but the driving force in the housing market continues to be buyers backing out of contracts. January sales were down 26% compared to a year ago. The national cancellation rate is now about 20%, with 1 in 5 contracts ending. In fact, KB Homes, one of the largest builders in the country reported 68% of its orders for new homes were canceled in 4th quarter of 2022.
Building new homes can take up to a year so the rising interest rate from 3% to 6% greatly affected the affordability of homes. Many families may no longer qualify for a mortgage or have decided they can no longer afford the home they chose.
Buyers are also struggling to sell their current homes with the changing market. With housing prices growing slower or even falling slightly in some markets, many are having to reevaluate whether now is the best time to buy or sell.
Affordability is not the only issue causing cancellations. House hunters now can take the time to explore their options and be choosier. During the pandemic home buying frenzy, buyers had to act quickly and take homes however they could get them often foregoing home inspections. Today, Buyers have the time to do the inspections allowing them to see any potential problems a home may have as well as continue their search in case a better home comes on the market.
Although Real Estate Agents do not have control over affordability and findings on home inspections, clear communication and managing expectations can go a long way in preventing cancellations.
The biggest complaint that buyers and sellers share is a lack of communication. When they do not know what is coming next, it is understandable that they can become uneasy during the process. As an agent being dedicated to clear communication with all parties including the Buyer, Buyers Agent, Seller, Sellers Agent (if you have it), Closing Attorney, Closing Assistant, Transaction Coordinator and Lender can drastically reduce the numbers of cancellations. Some real estate experts even recommend creating one group email with instructions to everyone to “reply all” so everyone is clear with the current status and next steps.
Broker of Record, C21 Hometown Realty