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Six Reasons Why Housing Inventory is Declining

Home sales have risen compared to the same month in the previous year for eighteen straight months. December home sales were close to thirteen percent above the levels of a year ago. For 2012, sales were up 9% to 4.65 million, which is the highest annual sales total since 2007.

Prices are picking up this year because the number of homes for sale continues to drop. The number of homes for sale at the end of 2012 fell to 1.82 million, which is a 21.6% decline from one year earlier. The six reasons why inventory has continuously dropped are:

1. Many homeowners are underwater: More than ten million homeowners owe more on their mortgage than their homes are actually worth, which is 22% of homeowners with a mortgage, and 15% of all homeowners. Underwater homeowners are not likely to sell because they will damage their credit in a short sale where the bank allows then to sell for less than the amount owed. Because of this, inventory has been controlled where there is a large concentration of underwater homeowners.

2. Other homeowners do not have enough equity to “trade up”: On top of that, another ten million homeowners have less than twenty percent equity in their home. Usually, homeowners rely on their equity to make the down payment on their next house, and to pay their real-estate agent. Because people do not have the equity to move to a more expensive home, they have not put their house on the market, which is slowing down inventory.

3. Everyone wants to buy at the bottom, but few want to sell at the bottom: People are always skeptical to sell if they believe that prices will rise in the near future. It is unrealistic to expect someone to sell their largest asset when it could be worth more down the road.

4. All kinds of investors are purchasing more: Whether it is big institutional investors or mom-and-pop landlords, investors have increasingly bought homes to rent out rather than renovate and resell for a profit. This is keeping the houses off the market to calculate inventory in two ways: homes bought at foreclosure auctions do not appear on multiple-listing services when initially sold, and they get held out of the “for sale” pool because they are being rented.

5. Banks have been slow to foreclose: Banks and companies that process delinquent mortgages have had trouble proving that they have abided by state law in taking the titles to the homes since the scandal in 2010. There have also been many new state and federal rules that govern loan modifications and foreclosures from settlements that arose from the robo-scandal.

6. Builders have been reluctant to build homes: Housing start-ups have drastically declined from 2009 to 2011 and have just recently started to rebound from those low levels. Because of this, there has been much less new home inventory. However, if more homes are held off the market because of the 5 previous reasons, it is likely that builders will start building to fill that void.

If you are looking to purchase or sell real estate, feel free to contact Pulgini & Norton, LLP at (781) 843-2200 or (888) 344-2046, or email us with any questions you may have. Our attorneys offer nearly 40 years of combined legal experience and provide thorough, timely, and results-driven service in many aspects of both residential and commercial real estate.

Cited sources:

Six Reasons Housing Inventory Keeps Declining, The Wall Street Journal, January 22, 2013

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