Why Are Home Sale Deals Falling Apart In US Cities?

Citing an analysis from real estate listing website Trulia, Bloomberg reported that "3.9 per cent of homes in the US cities moved from for-sale to pending moved back to for-sale again, nearly double the rate in 2015". "Such 'failed sales' increased in 96 of the 100 biggest US metros, with big swings in areas large and small, rich and poor," the report adds.

Ventura County, where the median home value is $548,000, registered the highest number of unsuccessful deals. From 3.1 per cent in 2015, prospective home sales deals fell 11.6 per cent in 2016 here. Tucson, Arizona, followed the trend with 10.8 per cent of deals falling apart, up from 3.5 per cent in 2015. Atlanta, Georgia, stood at the third spot, according to the Trulia analysis.

And then, there are certain interesting trends to be seen. The analysis points out that deals involving cheaper and older homes saw the highest fail rate. This could only be explained by the fact that buyers' stakes are rather high in deals that are high in value, and exercising the right to exit may lead to taking a financial hit much bigger if the investment was made in a deal smaller in value.

However, the answer to why the number of unsuccessful deals across the US is increasing is a question hard to answer. Has availing of home loans become more complicated. Not really. According to the Bloomberg report, "borrowers are having an easier time getting mortgages". Citing data from mortgage software company Ellie Mae, the report says that 77 per cent of purchase mortgages made it to closing in October, the highest percentage since 2012.

This brings us to another point. You quoted a price for a house in one of the hot markets, but your lender does not think the property is worth all that and rejects your home loan application. Even that does not explain the falling apart of home sales deals in the US. "There were plenty of hot markets in 2015, when the fail rate was lower, so it's not obvious why low appraisals are responsible for increased failed sales," says the report.

The falling rate of success of deals involving old homes can be explained by the fact that buyers decide to walk out when they see they will have to invest huge money in carrying out renovations. Considering the heavy cost of services in the US cities, repairs could burn a big hole in your pocket. And you would rather walk out of the deal on finding defects at a later stage than buy a house that needs repairs.

But, this would have been true all this while; why is the rate of falling deal on the rise now? The answer is the rise in the number of fir-time home buyers. Citing Felipe Chacón, a data analyst at Trulia, the Bloomberg report said: "An increase in first-time homebuyers could offer a plausible explanation. Inventory shortages in many US markets have been most acute for the entry-level homes first-time buyers usually seek. Those buyers can face greater scrutiny from mortgage lenders."