As a well-known inflation-proof asset, real estate has been highly sought-after for most of the last two years. But things seem to be shifting.

According to a new report from real estate brokerage Redfin, around 60,000 home-purchase agreements in the U.S. fell through last month. That equates to 14.9% of all homes that went under contract in June.

To put things in perspective, cancellations were at 12.7% in May 2022 and 11.2% in June 2021.

In fact, 14.9% was the highest cancellation rate since early 2020, when the COVID-19 outbreak brought real estate transactions to a near dead stop.

What’s behind the sudden change in home buying behavior? Let’s take a look.

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Less competition

You’ve probably heard of some house in your neighborhood getting sold for well over its asking price because of multiple offers.

When there are competing offers, people don’t want their deals to slip away.

But when there’s no competition, things can work differently.

“The slowdown in housing-market competition is giving homebuyers room to negotiate, which is one reason more of them are backing out of deals,” says Taylor Marr, deputy chief economist at Redfin.

“Buyers are increasingly keeping rather than waiving inspection and appraisal contingencies. That gives them the flexibility to call the deal off if issues arise during the homebuying process.”

Higher interest rates make housing less affordable

To tame spiking inflation, the Fed is tightening aggressively. Last month, it raised its benchmark interest rates by 75 basis points, marking the largest rate hike since 1994.

And now, with June’s headline inflation rate coming in above expectations at 9.1%, traders expect the Fed to make a full percentage move at its meeting later this month.