A stunning new analysis from Trulia suggests that rising interest rates in 4Q 2016 may actually be having the desired effect of cooling home sales, despite the best efforts of Obama to keep the party rolling at the expense of American taxpayers. Looking at homes that go from "pending" status back to "for sale", Trulia found that the number of home "sale failures" spiked in Q4 2016, to nearly nearly double the 2015 rate, with "starter homes" being most at risk.
Nationally, sales have been failing at an increasing rate, rising to 4.3% in Q4 2016 from 1.4% of all listed properties during Q4 2014. On an annual basis, the failure rate has nearly doubled to 3.9% in 2016, up from 2.1% in 2015.
New homes and very old homes are least likely to see deals fail. As of Q4 2016, homes built in 2016 have among the lowest proportion of failed sales at 2.6%. That proportion increases steadily as age increases to an average of 5.2% in homes built from 1959 through 1969, then falls steadily to an average of 3.5% for homes built from 1900 through 1920.
Of all listings in the largest 100 metros, 7.1% of starter home listings failed in the most recent quarter, compared with 6.7% of trade-up homes and 3.8% of premium homes. For all of 2016, the failure rate was 6.3% for both starter and trade-up homes and 3.6% for premium homes.
During the last two years, the places with the most failed sales are predominantly in the West with Las Vegas leading the pack at 7.6% of all unique listings reverting back to “for sale” at least once.
During the most recent quarter, Tucson, Ariz., saw the highest rate of failed deals with 13.9% of all unique listings retrogressing. For all of 2016, Ventura County, Calif., had the highest fail rate at 11.6%, up from 3.1% in 2015.
Considering both the last two years and just the most recent quarter, Madison, Wis., has had the fewest listings fall back to a “for sale” status at 0.1% of all listings.
Not surprisingly, per Bloomberg, the highest rates of failure occurred in the subprime mecca of the American Southwest.
Meanwhile, starter homes performed the worst...
And while any number of things can cause a home sale to fall through, including lower than expected appraisals and bad home inspections, we suspect that rising mortgage rates are more likely the cause of the sudden surge in "failed sales" rather than a national outbreak of termites. With Americans managing their monthly budgets down to the last penny, because you can "afford it" as long as you can cover the monthly payment, we suspect the 60bps rise in the average 30-year fixed mortgage rate during 4Q was just more than the fragile American budgets could bear.