Sellers, once in the driver’s seat fielding bidding wars, are reducing their asking prices, while more homebuyers are backing out of deals.

“The housing market has absolutely shifted and buyers have been hitting the brakes in June,” Jeff Tucker, an economist at Zillow, told Yahoo Finance Live (video above). “It suggests buyers are finally including contingencies in the offers they made this spring, which gives them that possibility of opting out.”

In June, approximately 14.9% or 60,000 home purchases under contract were canceled, according to a recent Redfin report, while 7% of homes for sale had a price drop, a high for records dating back to 2015, according to a separate Redfin report.

The culprit? Mortgage rates that are two percentage points higher than the start of the year, with major up and down movements in the last two months. The 30-year fixed mortgage rate dropped to 5.30% last week from 5.70% the week prior.

Rate fluctuations mean that unless homebuyers locked in rates, those who once qualified might become ineligible as rates increase.

“It’s affordability. Higher mortgage rates and higher home prices means that the typical mortgage payment is up over half, about 60%,” Tucker said. “A lot of buyers can’t afford that or heard the bad news from their mortgage lender that where mortgage rates are today, you can’t afford this house.”

Inflation and talks of recession also may be cooling homebuyer demand.

The areas that saw the biggest run-up in housing prices due to the pandemic migration patterns may experience the largest price drops, Tucker said.

“This is a necessary cooling down and rebalancing after we’ve just had the most unbalanced, overheated housing market on record,” Tucker said. “Buyers are pulling back, inventory is beginning to climb and then the last domino to fall is to push home price growth back down. So, we should expect it to kind of level off and actually see some modest home price declines in certain parts of the country.”

Ronda is a personal finance senior reporter for Yahoo Money and attorney with experience in law, insurance, education, and government. Follow her on Twitter @writesronda

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