Many homebuyers have backed out of offers as mortgage rates hit a 23-year high.

Homebuyers are backing out of offers at the fastest rate in a year, according to a new study. The culprit: high loan rates.

According to Redfin, there were 53,000 U.S. home purchase deals, equivalent to 16.3% of the homes that went under contract that month. This is the highest percentage of contracts canceled since October 2022, and mortgage rates are above 7% for the first time in two decades. The share is up 15.2% from the month earlier and 15.8% from a year ago.

Buyers have been hit hard by an epidemic of rising home prices due to an influx of remote workers, according to Redfin, with contract cancellations reaching more than 20 percent in some areas of Florida.

The response from buyers comes as mortgage rates hit a 23-year high between August and September, persuading those with a higher price to hold off on their home-buying plans. More cancellations may be on the horizon as rates hover around 8%.

Read more: 20-Year Mortgage Rates: Is 2023 a Good Time to Buy a Home?

“Buyers are more cautious these days. They want to make sure they’re getting a good deal, no matter how much the mortgage payment goes up, and if they don’t feel like they’re getting a good deal, they’re going to back out,” Heather Cruay, a Redfin Premier agent in Jacksonville, Fla., said in a statement.

Potential home buyers visit an open house.  (Credit: Getty Images)

Potential home buyers visit an open house. (Credit: Getty Images) (The Good Brigade via Getty Images)

Florida saw the highest cancellation rates.

The Sun Belt region — which saw home prices jump by double digits during the outbreak — has lost some of the heat as prices continue to rise.

Among the 50 most populous metros analyzed by Redfin, Atlanta had the most pending sales in September. Around 24.4% of contracts were canceled that month, down from 23.6% in August – but down slightly from 27.1% a year ago.

Florida metros rounded out the five major cities with the highest share of cancellations, with Jacksonville dropping 24% of contracts in September, followed by Orlando (23.6%), Tampa (22.7%) and Fort Lauderdale (22%).

Given how much home prices have outpaced wage growth, it’s not surprising that some buyers are holding back. Add in higher mortgage rates this year and payments have become unaffordable for many.

For example, those looking to buy in Fort Lauderdale had to earn 22.2% more in August than they did a year ago to buy a home with a median price of $420,000, a separate study by Redfin found. That median income is $114,549 — nearly $40,000 above the national U.S. median income of $75,000.

“Affordability is a big issue,” Jeffrey Reuben, president of WSFS Mortgage, told Yahoo Finance. “The interest rate environment is definitely creating constraints in our industry.” It’s become a depressed housing market.”

‘Buyers are frustrated’

High mortgage rates weren’t the only reason for declining home purchases.

“Additionally, transactions are collapsing due to rising insurance premiums and misunderstandings between buyers and sellers,” Kruai said in a statement. “In general, buyers now hold more cards, and sellers need to offer more offers to close the deal.”

In Florida, so many insurers are moving out of the state that their costs are rising, making it difficult for homebuyers to secure a homeowner’s policy at an affordable price. Homeowner’s insurance is a must in order to secure a mortgage, at the expense of buyers scrambling to get insurance in the first place and potentially disqualifying them for a mortgage.

Builders have seen cancellation rates rise as rates rise. According to LGI Homes’ latest earnings call, foreclosures in the third quarter were 27.9 percent, compared to 21.3 percent in the same period last year.

If there’s one silver lining for price-struck people, it’s that homebuilders have noticed the shift in buyer sentiment and are offering more offers to close deals.

Read more: Types of mortgage loans: Which one is best for you?

The National Association of Home Builders (NAHB) reported that 32 percent of homebuilders cut prices in October, compared to 25 percent in August. This is the highest rate since December 2022, when builders took a 35% discount. The average discount was 6%.

At the same time, 62% of builders offered sales incentives of all kinds in October, up from 59% the month before and tied for the previous high for this cycle set in December 2022.

“High-end home prices are becoming more expensive, and those on the hunt have no choice but to look for other financing, such as adjustable-rate mortgages (ARMs) or new construction, where there may be opportunities for lower rates,” Reuben said. “Today’s buyers are growing frustrated.”

Gabriela He is a personal finance and housing reporter at Yahoo Finance. Follow her on Twitter. @__gabriellacruz.

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