Buyers finding fewer homes for sale
Michele Lerner | Improvement Center Columnist | February 12, 2013
While countless prospective home buyers and stymied real estate agents can tell you anecdotes about how hard it is to find homes for sale in many markets, the National Association of Realtors provides the big picture view of the housing market. The number of homes on the market in December 2012 fell 8.5 percent from November to 1.82 million existing homes for sale. This represents approximately a 4.4 month supply based on the current sales pace, the lowest supply of resale housing since May 2005 at the height of the housing boom. Listed inventory dropped 21.6 percent from December 2011 to December 2012.
The new home market is equally limited, with the Census Bureau reporting a supply of 4.9 months of new homes at the current rate of sales, compared to 5.4 months in December 2011 and 11.2 months supply in 2008.
Intuitively, it would seem that given the shift from a buyer's market to a seller's market, homeowners would be rushing to get their homes on the market. However, there are multiple reasons that sellers remain resistant to listing their property.
Low inventory factors
The lack of homes available to buyers is influenced by numerous factors that impact buyers and sellers. According to a recent article in The Wall Street Journal, the supply is low for several reasons:
- Fewer foreclosures are on the market. Financial institutions have had to slow down their foreclosure process to meet new state and federal regulations regarding delinquent loans. Many lenders have become more receptive to loan modifications and short sales instead of foreclosing on borrowers. In addition, investors quickly pounce on bargain-priced foreclosures preventing regular buyers from purchasing them.
- New home construction is slow. Lack of demand coupled with tightened credit stopped many home builders from building new homes in recent years. While some builders are ramping up again and starting to build, the process from permitting and financing to actual home sales can take months or a year or more.
- Many homeowners are still underwater. Stabilizing and slowly rising prices are helping, but about 22 percent of homeowners with a mortgage are still underwater, owing more on their loan than the value of their property, according to CoreLogic. Unless they must sell, these homeowners would rather hold onto their property until they get above water again and can make a profit by selling.
- Other homeowners have low equity. Even homeowners with a little home equity are more likely to wait to sell if they can because they, too, want to make a profit so they can buy another home. Sellers with low equity may make little or no profit after paying a real estate commission, paying for repairs and closing costs.
- Homeowners hope for higher prices. While most economists think housing costs have already hit rock bottom, that doesn't mean home values are anywhere near their peak. Realistic homeowners may not think they'll reach 2005 prices again anytime soon, but they may still want to hold out for another year to see if values go up more.
- Investors are snapping up the bargains. Investors, too, are hoping for higher prices in a couple of years, so rather than buy-and-flip, they are buying and holding. Many investors are renting out homes while they wait for values to rise.
Impact of low inventory
Buyers facing competition for a limited number of homes need to be more prepared than ever to move fast. If you are shopping for a home, you'll need to have your financing in place, know what you are comfortable spending and have a solid idea of what you want in your price range in terms of the size, style and location of a home.
As home prices rise and homeowners gain confidence about their ability to sell, more homes are likely to be placed on the market. Depending on how quickly this happens, the momentum of rising prices could slow. As with all real estate topics, it's important to keep up with trends in your community, not just the national news. If you see prices going up fast in your community, it may be time to buy before the home you want becomes out of reach financially.