Posted over 4 years ago

Inventory Still Declining as Prices Rise

Following 2012, a year of steady decline in housing inventory, January 2013 shows the market still has not improved, according to Movoto Real Estate. The housing industry traditionally sees a rise in inventory at the beginning of the year. This January however, inventory has declined to about 88,000 homes listed on the MLS.

As the inventory fell, the monthly list price per square foot increased from $169 in December to $173 in January. This is an $18 price increase over the same figure a year ago.

Who do these trends hurt most?

The typical homeowner stays in a house for five to seven years. In a normal market, people who purchased houses between 2006 and 2008 would now be selling those houses and moving into new homes.

This cycle, however, has fallen apart, meaning that first-time home buyers have almost no homes to purchase and increased competition among the ones that are on the market.

How did the market get this way? Five to seven years ago, the housing industry was inside an unprecedented housing bubble. And then the bubble burst. Homes people purchased lost significant value, and many home buyers ended up paying more for a home than it was worth.

Fast forward to today, and we are still feeling the effect of the bubble’s collapse.

The Troubles of Being a First-Time Home Buyer

Because the five-to-seven-year-homeownership cycle is broken, first-time home buyers are having a difficult time locating property. While the reasons for this can be traced back to the housing bubble, there are six specific problems.

Those who purchased homes five to seven years ago aren’t rushing to sell their property. Why? Like most sane people, homeowners want to recover some of the money they invested in their property. They are waiting for the market to improve before putting their home up for sale.

Those homebuyers who can afford to sell fear not being able to purchase a new home, so they aren’t selling. (Remember standing around at the high school dance wondering who’s going to be first to ask a girl to dance?)

Banks, like underwater homeowners, are keeping properties in foreclosure off the market until prices increase. Instead, lenders are favoring loan modifications and short sales.

Though inventory is low, there are homes for sale. The problem is they are higher-quality homes being sold by homeowners who purchased their properties more than seven years ago. This means they are outside of most first-time home buyers’ price range.

First-time home buyers will need to look hard to find a deal. Since the market crash, private equity companies have purchased large amounts of foreclosed homes, which typically sell at a 15-percent discount. First-time home buyers are now competing for normal sales.

For now, investors are in love with real estate. First-time buyers who need to finance their purchase will qualify for a fixed purchase price, and it is unusual for them to have the financial strength to go beyond that price. Investors have cash (that’s why they’re called investors, remember?) and a slight price increase is OK for them if it wins the deal.

The lesson for January is that the market is stacked against most first-time home buyers, at least until someone gets on the dance floor.