Homebuyers in US Canceled Contracts at Record Rate for January

The U.S. housing market continues to grapple with affordability challenges and economic uncertainty, as evidenced by the record-high cancellation rate of home purchase agreements in January 2025. According to Redfin data, approximately 41,000 home-purchase agreements were canceled in January, representing 14.3% of all contracts signed that month. This marks the highest January rate on record since 2017.

Several factors contribute to the surge in cancelled contracts, including:

1. High Mortgage Rates: The average 30-year fixed mortgage rate reached 6.96% in January, up from 6.72% the previous month and the highest level since May. This increase in borrowing costs makes homeownership less affordable for buyers, leading to more cancellations.
2. Weakening Demand: Fewer buyers in the market means more unsold homes, contributing to the higher cancellation rate. Existing home sales fell 1.7% in January to a seasonally adjusted annual rate of 4.3 million, the biggest monthly decline since October 2023.
3. Homes Sitting on the Market Longer: The typical home sold in January spent 56 days on the market, seven days longer than a year ago and the longest for any January since 2020. This increase in days on the market can lead to more cancellations as buyers become more selective or lose interest.
4. Economic Uncertainty: Factors like potential tariffs, federal workforce reductions, return-to-office mandates, and fluctuating mortgage rates are making both buyers and sellers hesitant, contributing to the higher cancellation rate.

Regionally, the cancellation rate varies, with some markets experiencing higher rates than others. In June 2024, Florida metros led the nation in home-purchase cancellations, with Orlando having the highest cancellation rate at 20.8%. This can be attributed to high housing costs and elevated mortgage rates, making it challenging for buyers to afford homes in Florida. Additionally, the Florida housing market has been particularly volatile, with rapid price increases and a high number of listings with price cuts, contributing to buyers' hesitancy to commit to a purchase.

In contrast, some Northeast and West Coast metros, such as San Jose and Seattle, saw pending sales rise in January 2025. This can be attributed to strong local economies, with high employment rates and job growth, making buyers more confident in their ability to afford a home and commit to a purchase. Additionally, in these markets, sellers may be more willing to negotiate on price or make repairs, making it more attractive for buyers to commit to a purchase.

As the housing market continues to evolve, buyers and sellers must remain vigilant to the changing dynamics and adapt their strategies accordingly. With mortgage rates remaining high and home prices continuing to rise, buyers may face ongoing affordability challenges, leading to further cancellations and market uncertainty.