With prices leveling off and more homes on the market, buyers now are more likely to walk away from a deal when they hit a snag before closing.
As a result, one out of every six Southern California transactions fell apart in May, killing 2,261 home sales, according to Redfin, the online brokerage. It was the second straight month that local cancellation rates increased from the year before.
In April, 16.5% of Southern California home sales fell through, followed by a 15.6% cancellation rate in May, up in both months from around 15% a year earlier.
Breakdowns by county show cancellation rates were above the April and May averages throughout the region.
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Tom Pelton, a Coldwell Banker broker overseeing four Palm Springs area offices, said he’s seen “a dramatic increase in buyer cancellations” in the last few months.
“Gone are the days when a buyer had to buy now before prices went up,” Pelton said in an email. “Now, a buyer can easily decide to wait to buy and not miss out, or cancel an escrow and find something better later.”
The rise in cancellations comes as malaise grips the housing market.
Home prices in the region are leveling off — albeit at or near record highs. In Orange, Riverside and San Diego counties, prices fell in May for the first time in two years, according to Redfin.
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Yet prices and mortgage rates remain high, causing some would-be buyers to hold off — or “change their minds at the eleventh hour,” Redfin reported. The California Association of Realtors reported that just 15% of Southern California households earned enough at the start of the year to afford to a home here.
As a result, home sales slumped, falling to the lowest level for a May since the Pandemic.
The average Southern California home took almost a week longer to sell than a year ago, causing for-sale inventory to balloon to the highest level since October 2020.
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“It’s a buyer’s market,” Redfin reported in May. “Some house hunters are backing out during the inspection period because a better house has or might come along.”
(Staff chart, Orange County Register/SCNG)Southern California’s rise in cancellations mirrors what’s happening nationwide.
The National Association of Realtors reported that U.S. cancellation rates were up from the year before in March, April and May.
Stock market fluctuations and geopolitical uncertainties may be contributing to the high cancellation rates, The Associated Press quoted NAR Chief Economist Lawrence Yun as saying.
“In just about every transaction, buyers have one foot out the door,” said Huntington Beach agent Terry McCarty. “And many sellers have buried their heads in the sand and refuse to accept the reality that you need to work with buyers and often times concede on things like repair requests and undervalued appraisals.”
Buyers feel they have the upper hand, McCarty said, and when sellers push back, “buyers simply walk.”
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