Discover the Impact: Homebuyer Contracts Crumbling as Expectations Plummet – Orange County Register

Escrow Cancellations: A Growing Concern for Homebuyers and Lenders

Escrow cancellations have reached alarmingly high levels, affecting not only homebuyers but also wholesale mortgage lenders and real estate agents. In fact, according to a recent report by Redfin, 15.7% of home purchase agreements were canceled in August, marking the highest percentage since October 2022. As an experienced mortgage broker, I have observed that it is mostly buyers who are canceling escrow, and these buyers are typically not cash buyers.

So, why are homebuyers changing their minds and canceling? Here are some common reasons:

– Many buyers are waiting for a drop in mortgage rates as they cannot afford rates above 7%.

– Some buyers realize that they do not have the financial means to renovate the property according to their preferences.

– Cold feet can also be a reason for canceling, as buyers may feel uncertain or anxious about the purchase.

– Homebuyers may discover that the property is located in a designated wildfire area, which makes the cost of insurance unaffordable.

– In some cases, sellers refuse to pay for the home inspection repair list, leading buyers to cancel the deal.

All of these reasons are valid and understandable. However, it is important for potential buyers to consider whether the next opportunity will be any different before canceling.

Unfortunately, the scarcity of homes for sale is unlikely to improve anytime soon. Reports on Housing data shows a significant decline in available homes, with a 75% decrease compared to 15 years ago. The situation is particularly challenging in Southern California, as evidenced by the following inventory declines:

– Los Angeles County: 52% decline

– Orange County: 69.6% decline

– Riverside County: 39.8% decline

– San Bernardino County: 33.9% decline

– San Diego County: 65.3% decline

This shortage of inventory is a key factor contributing to the high cancellation rates. Additionally, factors such as low mortgage rates and property tax protections provided by Proposition 13 make it less likely for homeowners to sell their properties.

While a potential recession might lead to some homeowners needing to sell due to financial constraints, it is more likely that they would choose to rent out their homes instead. Renting a property can provide a source of income while downsizing to a more affordable rental property, resulting in reduced shelter costs.

Given these circumstances, it is crucial for homebuyers to carefully evaluate their options before entering into a residential purchase agreement. Canceling a deal should not be taken lightly, considering the limited inventory and the challenges of finding another suitable property.

Additional Information

– The 30-year fixed rate averaged 7.19%, slightly higher than the previous week.

– The Mortgage Bankers Association reported a 5.4% increase in mortgage applications.

– Assuming a borrower gets the average 30-year fixed rate on a conforming $726,200 loan, this week’s payment is $434 higher than last year’s payment.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or [email protected].