High prices and more options have pushed home-sale cancellations to a record level, new industry data shows.

Roughly 40,000 home-purchase agreements were canceled in December, according to a report from Redfin. That's 16.3% of homes that went under contract, up from 14.9% a year earlier and the highest December rate in records dating back to 2017.

"High housing costs and rising inventory have made homebuyers more selective," said Chen Zhao, head of economics research at Redfin, in a press release Monday. "Home sellers outnumber buyers by a record margin, meaning the buyers who are in the market have options and may walk away if they believe they can find a better or more affordable home."

There were 47.1%, or 631,535, more home sellers than buyers in the market last month, the largest gap in records dating back to 2013 and the largest monthly increase, 7.1 percentage points, since September 2022, Redfin reported last week.

Buyers frequently backed out of deals because of a structural issue that popped up during inspection, even if their primary reason for canceling was that they realized the mortgage payments were too expensive, according to the release.

Mortgage payments have declined recently, though, as rates have dropped and home-price growth has slowed, inching up just 0.2% and 0.1% month over month in November and December, Redfin found in a prior report.

Redfin and Cotality economists also expect affordability to continue to improve this year, boosted by income outgaining home prices.

"If mortgage rates decline as expected, we could see renewed momentum in the spring, spurring increased competition among buyers and potentially driving a re-acceleration of price gains in markets with limited inventory," said Selma Hepp, Cotality's chief economist, in a press release earlier this month.

Where were cancellation rates highest?

More than 22% of pending home sales in Atlanta fell through in December, up from 19.6% the month prior and the highest share among the cities Redfin analyzed. Atlanta also led the country in November, as sellers outnumbered buyers by more than 80%. 

Jacksonville, Florida (20.6%), San Antonio (20.6%), Cleveland (20.2%) and Tampa, Florida (19.4%), rounded out the top five.

Cancellations were least common in Nassau County, New York, and San Francisco, as each recorded rates below 5%.

San Jose, California, posted the third lowest rate at 8.9%, but saw the largest annual increase in cancellations with a rise of 6.8 percentage points last month. Oakland, California, Sacramento, California, and Atlanta followed with increases of more than four percentage points.

The Bay Area has been up and down since the pandemic, cooling down in 2022 before becoming one of the hottest markets in the country last year. Now, it's more balanced, Redfin said.

"Buyers have options and aren't shy about negotiating to find the right home," said Alison Williams, a Redfin Premier real estate agent in Sacramento. "Cost is a major barrier right now, so if the seller hasn't fixed maintenance issues or the home is priced too high, the buyer may back out."

Cancellations fell most in Detroit (-8 percentage points), Warren, Michigan (-2.8 percentage points), Pittsburgh (-2.3 percentage points), Los Angeles (-1.1 percentage points) and Nassau County (-0.7 percentage points).