In a sharp shift from the frenzied market of recent years, Southern California’s housing sector is now grappling with a growing wave of buyer pullbacks. According to new data from Redfin, approximately 1 in every 6 home purchase agreements in the region fell through in May, leading to the cancellation of 2,261 pending home sales—a clear sign of cooling momentum and rising transaction uncertainty.
This spike in failed deals reflects a complex set of challenges that are reshaping the residential market across the region. While buyer demand hasn’t disappeared, it has become far more cautious, with prospective homeowners more likely to walk away during escrow if conditions aren’t just right.
Why Are So Many Deals Falling Apart?
Industry experts and local agents point to several contributing factors. Chief among them is a growing mismatch between buyer expectations and seller realities.
“In this market, buyers are no longer willing to overlook red flags,” said one veteran broker based in Orange County. “Inspections are more scrutinized, repairs are being demanded, and appraisals are being questioned. It’s not the market of 2021 anymore.”
Indeed, one common reason cited for deal cancellations is the failure to come to terms after inspections. With more inventory sitting on the market, buyers feel empowered to negotiate—or walk—if they discover issues like aging roofs, outdated plumbing, or foundation concerns. In years past, such issues might have been glossed over in a competitive bid war. Today, they’re deal-breakers.
Appraisal gaps are another sticking point. When homes don’t appraise at the agreed-upon purchase price, buyers must decide whether to make up the difference or renegotiate. Increasingly, they’re choosing to cancel.
In other cases, contingency clauses—including home sale contingencies—are leading to delays or cancellations, particularly as some buyers struggle to offload their existing homes in a slower-moving market.
A Shift in Leverage and Psychology
The rise in cancellations also signals a notable shift in market psychology. For nearly two years, Southern California sellers held most of the cards. Buyers waived contingencies, rushed offers, and often bid over asking just to compete. That urgency has evaporated.
Instead, buyers are exercising their right to reconsider. With more options available and fewer multiple-offer situations, they’re not afraid to walk away if the deal no longer fits their needs—or if the home simply doesn’t feel like the right fit.
“Sellers are having to come back down to earth,” said a Los Angeles-based agent. “If they’re not realistic about pricing or condition, the buyers aren’t afraid to cancel and move on.”
Regional Variation, But a Common Theme
While the cancellation rate varies across counties, the broader trend is visible across Southern California—from San Diego to Ventura. Coastal communities, where home prices remain steep, are seeing a higher rate of inspection-related cancellations. Inland areas, by contrast, are seeing more walkaways related to contingency issues and shifting buyer priorities.
In all cases, however, the takeaway is clear: the era of blind bidding and waived contingencies is over. Buyers today are more discerning, and deals are far from guaranteed once a contract is signed.
What It Means for the Market Ahead
For sellers, the message is straightforward—be flexible, transparent, and realistic. Homes that are priced appropriately, well-maintained, and marketed with honesty are more likely to reach the finish line. Overpriced listings or those with hidden issues may find themselves stuck in a loop of deals falling apart and being relisted.
Agents, too, are adjusting their strategies. Many are doubling down on due diligence upfront—encouraging pre-inspections, tightening offer terms, and preparing sellers for tougher negotiations.
Despite the rise in cancellations, experts caution against reading the data as a sign of collapse. Instead, it may signal the return of a more balanced, rational market—one in which buyers and sellers operate on more even ground.
Still, with over 2,200 deals canceled in May alone, it’s clear that buyer confidence is fragile, and the path to closing is becoming less certain in Southern California.
As the summer continues, both sides of the transaction will need to adapt—because in today’s housing landscape, just getting into escrow no longer guarantees the deal will close.
