A new report from Trulia reveals that homes are receding of escrow at a much higher rate than usual, a sign that the real estate market is likely to be showing signs of cracking.
I warned at my 2017 prediction post that housing inventory wasn\’t gonna be very good this year, with a lot of older properties finally making their way to market after some 30, 40, or Five decades.
This is partially a demographic shift, and somewhat regarding the enormous home price gains realized over the last four or five years. In short, sellers are watching a good opportunity to unload, with frenzied buyers perhaps less picky as they should be.
The quality of homes for sale could be one of the reasons why homes are getting pending, and then back to active, at a much higher rate.
Trulia found that what are named as \”sale fails\” of all listed properties nationwide increased to 4.3% within the fourth quarter of 2016 from just 1.4% two years earlier.
That means more than four from 100 sales look just as if they\’re going to close, and then drop totally out of escrow for one reason or other.
It might not seem like a lot, but if you compare it to recent numbers, it\’s a problem that is trending markedly higher, and may signal distress in the market.
The failure rate also nearly doubled in 2016 to 3.9%, up from 2.1% in 2015.
Old Homes Are Failing Buyers
As I pointed out, a lot of these older homes are the problem. My best guess is that home inspections (get one!) are revealing some major difficulty with homes built 40 or 50 years ago.
And the data backs straight down. Homes built from 1959 through 1969 had the greatest sale fail rate at 5.2%, as compared to homes built in 2016, with a dropout rate of just 2.6%, which is among the lowest proportion of failed sale bands.
The rate of fails for very old homes, those built between 1900 and 1920, is in reality a bit better, just 3.5%, likely because such homes are priced at their history, unique design, location, etc.
The fail rate also seems to be more prevalent among starter homes, which again seems sensible because these types of properties go to first-time home buyers.
It\’s common to not be so prepared as a first-timer, and also to get cold feet. Selecting a home is a big deal, so backing out is probably more common.
Mortgage fallout is likely the rest of an issue too because someone buying their first home doesn\’t have any experience with the loan process, and might not be properly qualified. Or they can make common missteps that eventually result in a declined mortgage application.
In any case, of all listings in the largest 100 metros, 7.1% of starter homes failed during the fourth quarter, compared with 6.7% of trade-up homes 3.8% of premium homes. The bottom rate on premium homes may be attributed to more buyers paying with cash and foregoing the lender entirely.
Somewhat shockingly, starter homes only fell out from escrow at a rate of 2.4% two years ago, so we\’re thinking about a near 300% increase in fails in that bottom third of the price point.
Ventura, CA Is the Capital of Sale Fails
Last year, the Los Angeles-adjacent beach town of Ventura, California was home to the best properties falling out of escrow, with 11.6% retrogressing from pending to active.
It\’s unclear why C may be that appraisals are falling short, or it would have something to do with the type of buyer in the region.
During the fourth quarter of 2016, Tucson, Arizona saw 13.9% of unique listings put real estate brokers in a bad mood. For the twelve month, Tucson was number two on the list by using a 10.8% fallout rate.
Rounding out of the top five were Atlanta, Fort Worth, and La.
This trend is yet another reason to obtain all your ducks in a row in order to make an offer on a home, and exemplifies value of keeping contingencies in place so you do not burned!
Of course, it also means you obtain a second shot at a house that went pending, be sure that you know why the prior buyer walked away.