Housing red flag: Data show increase in cancellations of home purchase agreements versus a year ago

Key Points

• Some 6% of US pending home purchase agreements were canceled in May (up from 5% in May 2022), marking the third straight month of rising annual cancellation rates, while Redfin reports a record 14.6% of pending sales fell through.
• Buyers are increasingly backing out of deals due to unexpected costs, low appraisals or shifts in credit, employment and broader economic and geopolitical uncertainties, according to NAR economist Lawrence Yun.
• Despite cancellations, NAR data show pending home sales ticked up 1.8% from April and 1.1% year-over-year in May, even as resale transactions remain at their slowest pace since 2009 amid elevated rates and home prices.
• Fannie Mae cut its 2023 existing home sales forecast to 4.14 million from 4.24 million and expects a 9.5% sales rebound in 2026 as average 30-year mortgage rates ease to around 6.1%.

LOS ANGELES (AP) — The latest sign of trouble in the U.S. housing market: A pickup in home purchase agreements falling through before they're finalized.

Some 6% of pending contracts to buy a home were canceled in May, down from 7% in April, but up from 5% in May last year, according to data from National Association of Realtors. May is the third consecutive month with an annual increase in pending home sales cancelations.

A separate analysis of housing data by Redfin found that 14.6% of all pending sales in May fell out of contract, up from 14% in May last year, and the highest cancelation percentage for the month of May going back to at least 2017.

The trend underscores how even home shoppers who manage to ink a deal with a seller can end up having to back out because of unexpected costs, changes in their credit, employment or financial status, or a low appraisal, among other reasons.

“Stock market fluctuations, restrained consumer confidence and broader economic and geopolitical uncertainties may be leading to higher-than-normal cancellations rates in recent months,” said Lawrence Yun, NAR’s chief economist.

The U.S. housing market remains in a sales slump going back to 2022, as elevated mortgage rates and rising home prices nationally keep pushing the cost of homeownership well beyond what many would-be homebuyers can afford.

While sales of previously occupied U.S. homes in May remained at the slowest pace since 2009, pending U.S. home sales rose 1.8% from the previous month and increased 1.1% from May last year, NAR said Thursday.

A home sale is listed as pending when the purchase contract has been signed but the transaction has not closed. There’s usually a month or two lag between a contract signing and when the sale is finalized, which makes pending home sales a bellwether for future completed home sales.

A snapshot by Redfin of pending U.S. home sales for the four weeks that ended June 22, shows they fell 2.3% from a year earlier, the biggest drop in three months.

Economists at mortgage buyer Fannie Mae revised their outlook for existing U.S. home sales this week, citing expectations that the average rate on a 30-year mortgage will end this year at 6.5%.

Fannie Mae now expects existing U.S. home sales will rise 2% this year to 4.14 million. The economists' previously forecast the sale of 4.24 million homes. Still, they project home sales will jump 9.5% in 2026 on the back of mortgage rates easing to 6.1%.