First-time homebuyers made up more than a third of national home sales in 2016, but still saw a greater share of deals for homes fall through than experienced buyers, according to a new report on the frequency of failed deals by Trulia.
Thirty-five percent of sales last year were by first-time homebuyers‒‒up from 32 percent in 2015‒‒and this is just among successful transactions, according to the National Association of Realtors, but first-timers’ unfamiliarity with the process and the lack of equity more often doomed potential sales. This trend has been building over the past few years. Trulia reported that fails for starter homes increased from 2.4 percent to 7 percent between the beginning of 2014 and the end of 2016.
Nevertheless, older homes were most likely to see deals fall through. As of Q4 2016, homes that were around 50 years old had the highest failed sale rates. One reason, Trulia surmised, was that premium home listings make up more than 70 percent of all listings that were built after 2000, and less than 40 percent of homes built before 1980. Very old homes, however, built around 1900, were among the least likely to fail at the table.
“Since premium homes have the lowest fail rate regardless of year built, their dominance drives down the fail rate in more recently built homes, and their smaller role pushes up the fail rate in older homes,” the report stated.
Another factor causing failed deals for first-timers is sheer affordability. Even if first-time buyers can find a home, they may not be able to afford it, as households typically will need to spend nearly 39 percent of their monthly income to purchase a home, Trulia reported. Trade-up and premium homes, by contrast, remain relatively affordable, requiring 25.5 percent and 14 percent of monthly income to purchase, respectively.
Overall, rates of failed sales increased in Q4 compared to a year earlier.
Eight of the top 10 metro areas for failed sales last year were in the West, predominantly California. Atlanta and Chicago were the only markets not in the West to crack the top 10. In Q4 alone, seven of the top ten cities for failed sales were in the West, four of them being in California.
During the last two years, Las Vegas saw the highest percentage of failed sales, at 7.6. During Q4, Tucson saw the highest rate of failed deals, 14 percent.