The national rate of failed home sales — wherein the property moves from pending back to for-sale — nearly doubled to 3.9% last year from 2.1% in 2015, driven in part by an uptick in first-time buyers, according a new report by residential real estate website Trulia that analyzed U.S. home listings from the fourth quarters of 2014 to 2016.
An active market with historically low mortgage rates and high prices, as well as an influx of first-timers, are among the factors triggering the failed-sales rate rise, Bloomberg reported.
Across the 100-largest metros in which listings were surveyed, starter homes reported the highest failed sales rate (7.1%) in the latest quarter, followed by trade-up properties (6.7%) and premium homes (3.8%). For the year, sales of starter and trade-up homes posted a 6.3% failure rate compared to 3.6% for premium homes.
First-time buyers are bouncing back into the homebuying market, accounting for 35% of home sales in 2016, up from 32% in 2015 and accounting for the largest share since 2013, according to a recent report from the National Association of Realtors.
However, Trulia noted in its latest analysis, this group is typically new to the homebuying process and often lacks equity or a history of credit, unlike those who have previously owned. The additional attention that brings from lenders limits the kind of homes they can purchase and, ultimately, makes it harder to close.
Forecasts suggest that first-time buyers are slowly moving away from the rental market and considering homebuying as employment opportunities pick up, wage levels improve and inventory loosens. Still, it’s expected to be a slow process, and recent mortgage-rate increases could scare off this price-sensitive group, experts say.
A report this week from personal finance website SmartAsset identified 10 cities where buyers under the age of 35 were particularly active. While major U.S. coastal cities tend to top the list for young renters, their peer buyers are looking at smaller, inland markets like Sioux Falls, SD, and Chattanooga, TN, where the cost of living is low and rental opportunities, to begin with, are relatively few.
The rise in first-time buyers has helped support robust market conditions in the entry-level segment of the housing market, with Houston-based LGI Homes, which targets the category, achieving record monthly and quarterly closings in its latest report.
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