Several factors are driving the inventory drought which is dramatically changing housing markets, especially for properties under $200,000 in Western markets. HousingWire reported yesterday, for example, that Phoenix short sale prices rose 23 percent in June from last year, while foreclosures were up 36 percent and non-distress sales up 11 percent.
Nationwide the drought helped push the average home sales-to-listing price ratio to 95.6 percent in June, according to the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey.
One of the extraordinary factors constricting supply at the lower end of the market is negative equity, which has frozen in place about a quarter of all owners with a mortgage. Negative equity is more prevalent among mid to lower end owners than higher end. A second factor is the decline in distress sales. Foreclosures and pre-foreclosure sales accounted for 25 percent of June sales (13 percent were foreclosures and 12 percent were short sales), down from 30 percent in June 2011.
Yet, prices are finally rising, up over 5.4 percent in June year-over-year according to the latest existing sales report and median list prices on Realtor.com have been on the rise since the beginning of the year. up Fannie Mae now forecasts they’ll be up 8.4 percent by the end of the year. So why aren’t more of the 75 percent of homeowners (and investors) who are not strapped by negative equity taking advantage of the improving climate?
The answer, quite simply, is that sellers are deciding the time is not right, just as buyers did for six years. First, prices have not risen enough to motivate them. A survey by Realtor.com last fall found that yeas of low prices had created a pent-up supply of sellers who have kept their properties off the market until conditions improve. The survey found that a 5 percent increase in prices would motivate only 11.7 percent of owners to sell their home. In fact, owners last fall were less motivated by price increases than they were in a similar survey in 2009 when few could foresee the housing crisis would last so long. Also, many sold when prices rose as a result of the tax credit in 2010.
Second, owners are not yet believers that the market will continue to improve for them if the latest Fannie Mae consumer survey is accurate. Fannie found that only 15 percent of Americans think this is a good time to sell… the same level as the past three months. Some 61 percent believe prices will stay the same or fall; only 35 percent think they will rise over the next 12 months. After all, they’ve survived six years, what’s a few more months?
The irony is that in many markets, especially rebounding foreclosure markets like Phoenix and those with a strong local economy like Austin and San Jose, this is an excellent time to sell, the best time since the tax credit, if not since 2007. First-time buyers finally seem to have figured out they better act now or get left behind. Multiple offers are driving prices above list in dozens of markets, especially for lower end properties.
After years of abysmal prices, it’s understandable why homeowners are waiting and watching, especially those who can afford to wait and aren’t forced to sell now. Time is ticking down on this year’s home buying season; vacation time is here, school begins in a month, followed by the holiday season. Next year’s sellers will making up their minds over the next six months with an eye towards listing after the new year. They see reasons for uncertainty?the presidential election, the European economy, lackluster progress against unemployment. However, should the strong housing market continue and the national economy as well, look for a wave of fresh new inventory coming on market in the first quarter of 2013.
Photo: Raymond Shobe