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Low Inventories May Hurt Spring Real Estate Market

Written by Steve Cook on March 25, 2013 in Real Estate  |   4 comments

In most real estate markets, home prices have risen 5 percent or so in the past year, but they are still lower than they’ve been in ten years or more. Prices are expected to keep rising, so for home buyers, spring will be a good time to make that long-awaited…

spring real estate marketIn most real estate marketshome prices have risen 5 percent or so in the past year, but they are still lower than they’ve been in ten years or more. Prices are expected to keep rising, so for home buyers, spring will be a good time to make that long-awaited move to a first home or move up to a new home—if they can find one.

While prices are moving upwards, inventories of homes for sale are continuing to fall, which is normal for the winter months. What’s not normal is how much inventories have declined in the past two years and how thin the supply of homes has become, measured on a year-to-year basis. On the huge Realtor.com national database of listings, inventory levels through January were down more than 40 percent from two years ago and were still declining.

In normal times, increased demand drives up real estate prices. These days, lack of supply is the primary driver behind rising prices. A continued scarcity of homes is in the seller’s interest, but buyers want a healthy supply for two reasons: a wider choice and a restraint on prices. At the end of the day, sustained low inventory levels decrease sales and discourage buyers, and everyone suffers.

Low inventories are impacting the lower-priced end of the housing market much more than the top tier. Entry-level homes, starter homes, and distress sales (foreclosures and short sales) are the hardest find. Luxury homes are selling in about 200 days while move-in ready foreclosures (REOs) are selling much faster.

Low inventories result from several factors. The most important is the simple fact that prices have not yet risen enough since the housing crash to create an incentive for sellers. One out of five of all homeowners with a mortgage, about 10.6 million, still owes more on their home than their mortgages are worth. They simply can’t afford to sell.

Even though home values rose last year, the 33.5 million homeowners who bought between 2001 and 2006 would take a loss if they sold today, and they’re not selling unless they have to. Home values lost 34 percent between 2007 and 2009, and they have a long way to go to recoup the loss. Increased demand from investors who see the end coming for large numbers of foreclosures, processing delays in some states, and steady decline in defaults all are reducing the numbers of foreclosures available.

Here are some tips for buyers looking for a home this spring:

  • Increase your down payment as much as you can, even if your lender doesn’t require it. A larger down payment earns points with sellers, especially if you are competing against investors paying all cash.
  • If you find a house you really love, consider making an offer over the list price. To do so, you might have to increase your down payment as suggested above because otherwise you risk an appraisal of less than the amount you need to borrow, which could kill your deal. A higher offer might put you in a better position than competitors and leave you with a property that should continue to appreciate in the months to come.
  • If you are in the market for a foreclosure or short sale, hire a Realtor certified in distress sales. Look for an agent with the letters “SFR” after his or her name. To become SFR certified, Realtors must complete a one-day education program, either in-person or online, as well as three one-hour webinars.
  • Do some research to find the agency that seems to handle most of the foreclosures where you want to buy and hire one of its agents. Often, agents within a brokerage will know about new foreclosures or short sales before they are listed. If they can sell you the home, they will make a commission from the lender as well as the buyer’s commission.
  • If you’re handy or have friends in the construction and remodeling business, consider a damaged foreclosure. Unlike move-in ready foreclosures, damaged foreclosures are actually languishing in many markets and their prices are falling. HousingPulse reports that the average price for a damaged REO property sold in January was just $88,100. That was not only 17.1 percent below the average damaged REO price recorded a year ago—$106,300—but also the lowest level ever recorded by HousingPulse in its four-year history.

Buying a house in this environment can be tough. Don’t fall in love with one until your offer is accepted and your mortgage is approved. For those willing to work at it, though, the rewards will pay off for many years to come. Real estate people are always saying, “Now is a great time to buy a home.” This time, they’re right.

Steve Cook is Executive Vice President of Reecon Advisors and covers government and industry news for the Reecon Advisory Report.

During his 30 year career in public relations and journalism, Cook has been a print and broadcast news correspondent, served two Members of Congress as press secretary, was a senior executive in the world’s largest independent public relations firm in Washington and Chicago and was vice president of public affairs for the National Association of Realtors from 1999 to 2007.At NAR, Cook supervised external communications including news and editorial coverage, video production, speech writing and communications strategic planning. He helped to manage NAR’s multimillion dollar network advertising program.

Cook is a member of the National Press Club, the Public Relations Society of America and the National Association of Real Estate Editors, where he served as second vice president. Twice he has been named one of the 100 most influential people in real estate. He is a graduate of the University of Chicago, where he was editor of the student newspaper. In addition to serving as managing editor of the Report, Cook provides public relations consulting services to real estate and financial services companies, and trade associations, including some of the leading companies in online residential real estate.

4 comments

  1. Karen Steed says:

    As a Realtor (R) in Haralson and Carroll county GA, I agree – There is vary little inventory. Buyers are offering above list, and are still getting out bid. The lack of jobs is one thing hurting the local buyers. There are no loan programs for people without jobs.

  2. JOY says:

    NOTHING ON HERE LETS PEOPLE KNOW ON MORTGAGES HOW LONG OF A PERIOD DO YOU HAVE TO LOOK FOR A LOAN, AND HOW MANY POINTS ARE LOWERED ON THE INQUIRYS.

  3. EFX Moderator, EM says:

    Joy, I’m sorry we didn’t answer your questions. Unfortunately, there isn’t a definitive answer. There’s no way to know for sure how long you have to look for a loan but you should settle on one that has terms you can afford. Here is some information on credit inquiries on your report: http://blog.equifax.com/credit/will-interest-rate-shopping-hurt-my-credit-score/

    Thanks for posting and good luck in your search.

  4. Chris says:

    This buyer is OVER the darn investors who pay cash or have the extra $ to buy up the homes so they can rent them. I have lost 3 bids b/c of an investor paying cash. OVER it they need to give us who are just trying to buy a home that is affordable to buy. ANNOYED with investors they make enough just let the rest of us who want to own have the chance to buy a home WE can afford.


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