Trulia: Home Sales Falling Through at Higher Rate from Year Ago

Deals to sell homes are falling through at a faster rate than a year ago, reported Trulia, San Francisco. And it’s agreements for starter homes that are most at risk.

The report, Sale Fail: Signed, Sealed and Then, No Deal, said nationally, sales have been failing at an increasing rate, rising to 4.3% in fourth quarter from 1.4% of all listed properties during Q4 2014. On an annual basis, the failure rate nearly doubled to 3.9% in 2016, up from 2.1% in 2015.

The report (https://www.trulia.com/blog/trends/sale-fail/#sthash.b7VID8Ai.dpuf) said new homes and very old homes are least likely to see deals fail. As of the fourth quarter, homes built in 2016 have among the lowest proportion of failed sales at 2.6%. That proportion increases steadily as age increases to an average of 5.2% in homes built from 1959 through 1969, then falls steadily to an average of 3.5% for homes built from 1900 through 1920.

Trulia said of all listings in the largest 100 metros, 7.1% of starter home listings failed in the most recent quarter, compared to 6.7% of trade-up homes and 3.8% of premium homes. For all of 2016, the failure rate was 6.3% for both starter and trade-up homes and 3.6% for premium homes. During the past two years, places with the most failed sales are predominantly in the West with Las Vegas leading at 7.6% of all unique listings reverting back to “for sale” at least once.

During the most recent quarter, Tucson, Ariz., saw the highest rate of failed deals with 13.9% of all unique listings retrogressing. For all of 2016, Ventura County, Calif., had the highest fail rate at 11.6%, up from 3.1% in 2015, followed by Tucson (10.8 percent); Atlanta (10.4 percent); Fort Worth (10.4 percent); Los Angeles (10.3 percent); Charleston, S.C. (10.3 percent); San Jose (9.7 percent); Orange County, Calif. (9.6 percent); Portland, Ore. (9.3 percent); and Akron, Ohio (9.3 percent).

Madison, Wis., had the fewest listings fall back to a “for sale” status at 0.1% of all listings.

“Not only are first-time homebuyers unfamiliar with the process, they face unique hurdles,” said Felipe Chacón, housing data analyst for Trulia’s Housing Economics Research Team and author of the report. “They don’t bring equity or a credit history from a previous home. Their finances face additional scrutiny. And for those seeking an FHA loan for down payment, there are restrictions on type of home and its amenities.”

Trulia said starter home sale fails have increased from 2.4% in Q4 2014 to 7.1% in Q4 2016. Trade-up and premium homes have increased from 2.4% and 1.5% to 6.7% and 3.8%, respectively. During the fourth quarter, of the 100 largest metros, 62 of them had the highest proportion of failed sales occurring in the lower 1/3rd of homes by value, or what we call starter homes. Thirty-six of the remaining metros had the highest proportion of failed sales occur in the middle third of all homes by value (trade-up homes) and only two had the highest proportion of failed sales occur in the upper third (premium homes). In comparison, in Q4 2014 only 50 metros had the highest proportion of failed sales occur in the starter home price range while 39 and 11 metros had the highest proportion in trade-up and premium homes, respectively.

The report said home age also seems to be a pretty good predictor of a sale fail. As of the fourth quarter, homes that were built in 2016 had among the lowest failed sale rates at 2.6%. “Homes that are 20, 30 or 40 years old are more likely to be running to their first round of expensive necessary upkeep and improvements, which would increase their chance of having potential buyers shy away,” it said. “Beyond these formative years though, in order for a home to still be livable, some minimum level of upkeep needs to have been put into it. Major structural problems and other things that deter potential buyers have likely already been taken care of. Additionally, buyers looking at older homes are probably less surprised to hear bad (expensive) news from an inspection than buyers of newer homes.”