Cancellations on the Rise: Is the Housing Market Crumbling?

The housing market continues to face significant turbulence, with pending home sales cancellations reaching their highest levels for this time of year. According to a recent, over 41,000 home-purchase agreements were canceled in January, accounting for 14.3% of all transactions under contract. This marks a sharp rise from 13.4% in the previous year, signaling growing challenges in the real estate sector.

The housing market has seen a notable shift in supply and demand dynamics. Housing inventory has climbed to its highest level since 2020, providing homebuyers with more options. However, demand has weakened, resulting in fewer transactions. With more properties available, yet fewer buyers eager to commit, the cancellation rate has surged. Many prospective buyers are using the home inspection period to reassess their options and back out if they find more attractive alternatives.

Economic uncertainty remains a major factor in home sales cancellations. The ongoing volatility in job markets, inflation concerns, and shifts in federal policies have left homebuyers skittish. Many are hesitant to move forward with purchases, fearing potential layoffs or financial instability. Moreover, political uncertainty ahead of the 2025 housing trends report has further discouraged commitments, leading to rising cancellation rates.

Mortgage rates remain high, with January’s average rate reaching 6.96%, the highest in eight months. Combined with persistently high home prices, housing costs have presented significant affordability barriers for many buyers. While rates have marginally declined to 6.76% since January, affordability issues continue to force buyers to reconsider their financial commitments.

The highest cancellation rate was observed in Southeastern markets, where housing costs and supply imbalances have hit hardest. Atlanta reported the highest share of home sales canceled, with nearly one in five pending home sales falling through (19.8%). Other major cities experiencing significant cancellation rates include Orlando (18.2%), Las Vegas (17.9%), Houston (17.8%), and Jacksonville (17.8%).

In contrast, metro areas with more constrained housing inventory, such as San Francisco (4.1%) and San Jose (5.9%), reported significantly lower home-purchase cancellations. In these markets, where supply remains limited, buyers tend to follow through on their agreements despite high housing costs.

The natural disaster impact on the housing market cannot be ignored. Devastating wildfires in Los Angeles led to disruptions, increasing the number of home sales cancellations to the highest January level since 2017. Additionally, rising housing insurance fees in states like Florida have deterred buyers, contributing to a higher share of abandoned contracts.

Industry experts anticipate home-purchase cancellations rising if current economic conditions persist. With mortgage rates remaining elevated and inventory at its highest level, housing trends for 2025 indicate continued buyer hesitation. However, macroeconomic improvements or housing policy shifts could influence market stability.

For now, housing professionals and investors must navigate a landscape where rising supply, falling demand, and economic uncertainty create a challenging environment for transactions.