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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 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:
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.
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.
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