WHY MORE HOME SALES ARE FALLING THROUGH

Why More Home Sales Are Falling Through

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The dream: quick and easy sales where all buyers find perfect homes at the bottom of their budgets, mortgage applications and inspections are completed without hassle and sellers realize asking price. In reality this rarely happens: offers are rejected or, further along, buyers can't qualify for loans and inspections turn up costly flaws.In fact, home sales fell through at an increasing rate in 2016.

A new report from real estate data and search site Trulia measures how often homes returned to the market after an initial sale agreement had been reached. They did this by tracking listings that moved from “active contingent” or “pending” status back to “for sale” or “for sale by owner” in the country's 100 largest metropolitan areas.

Nationally 3.9% of sales failed in 2016, up from 2.1% in 2015. In other words, contracts rarely fall through. Fail rates are as low as 0.1% in some places and no metro area has a rate above 10%. However, the rate has been rising since Trulia began measuring in late 2014, which may point to shifts in the market. Meanwhile, certain home and buyer characteristics make it more likely that a sale will run into trouble.

​“This is a different way to look at what agents see on the ground,” says Trulia Housing Data Analyst Felipe Chacon. He points out that agents have commented these numbers are too low since many deals fall through before Trulia (or anyone outside the negotiations) could track it. The hope, Chacon explains, is for their method to be a way to consistently measure failure rates over time, which could lead to more concrete conclusions.

Experience of Buyer

According to the National Association of Realtors, first-time homebuyers accounted for 35% of completed sales last year, up from 32% in 2015. For the market at large the return of first-time buyers is a good thing since they have been notoriously absent for many years. Since derogatory marks tend to stay on your credit report for seven years, there may also be an influx of people getting back on housing ladder after dealing with disqualifying credit issues in the financial crisis.

But first timers, and other high risk buyers, are one potential explanation for the increase in failed sales. This is not just a game of blame-the-Millennials. While it is true that new buyers’ unfamiliarity with the process may make mistakes more likely, there are practical hurdles. First time loan applications get additional scrutiny, since they don’t have equity or credit history from a previous home. A lack of equity to tap also means first time buyers are more likely to use FHA loans—a mortgage insured by the Federal Housing Administration—which impacts the type of home they can buy. FHA, for example, does not like window unit air conditioning.

Price of Home

In the fourth quarter of last year 7.1% of starter home listings (the bottom third of listings in a city by price) failed, up from 2.4% in the fourth quarter of 2014. ​In 62 of the 100 largest metropolitan areas the highest proportions of failed sales were at the lower 1/3rd of home values. That’s up from 50 in the same period of 2014.

America's Top 10 Metros Where Starter Homes Sales Failed in 2016

Meanwhile, 6.7% of trade-up home sales (middle third) and 3.8% of premium home sales (top third) failed in the fourth quarter. For the full year, 6.3% of both starter and trade-up home sales failed and 3.6% of premium homes. Only two markets—Philadelphia and Wichita, Kan.—saw the most sales fail at the top of the market.

​Location of Home

For two years running, Las Vegas has been the worst place for failed sales with 7.6% of listings coming back on the market at least once last year. In fact, eight of the 10 metro areas with the highest proportion of failed sales are in the West, including three in California. Madison, Wis. had the fewest fails with just 0.1% of all listings reverting.

Age of Home

Unsurprisingly the newest homes are the least likely to have problems. Just 2.6% of contracts on homes built in 2016 didn’t go through. Middle aged homes—built from 1959 to 1969—had the highest percentage of failed sales at 5.2%. Interestingly, the average falls to 3.5% for older homes build from 1900 to 1920.

Original Author: Samantha Sharf

Source: Forbes

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