Yesterday Ocrenter (who I appreciate for continued contributions!), left this question:
So what is the theory behind the dried up inventory?
–the foreclosure pipeline finally drying up
–short sales tying up most of the distressed properties
–homeowners are avoiding listings due to the low median price
–ability to refi to historic low interest rates allowing homeowners to stay put
–inability to obtain profit at sales is preventing move upsAll of the above?
I think it is all of the above, with some qualifiers.
1. The foreclosure/short-sale pipeline.
The selling of distressed properties has slowed down, and could grind to a halt. Banks seem to have converted to using short sales as their primary disposal device, but they haven’t figured out how to get borrowers to give up the free-rent program.
The servicers are telling borrowers to short sell, but are they? It doesn’t look like it – both REO and short-sale listings for the county are down:
| Qtr. | REO New Listings | SS New Listings |
| 1Q10 | ||
| 1Q11 | ||
| 1Q12 |
We are in this funky purgatory – where defaulters are being coddled further. Servicers are taking their foot off the foreclosure gas, which is counter-productive – it removes the pressure on defaulters to either short-sell their house, or be foreclosed. Without the threat of foreclosure, they will enjoy the free-rent program indefinitely.
2. Sellers are waiting for something.
Elective sellers are certainly committed to stay on the sidelines, but here is the reality:
Their motivation to sell isn’t strong enough.
Their reluctance to sell can’t be based solely on selling for a higher price. If that was all they wanted, they could have sold anytime during the last 5-7 years and gotten more money – but they didn’t.
They just don’t feel like selling, for whatever reason. They don’t need the money bad enough yet, they don’t have anywhere else to go that’s better, or the grandkids are here, so phooey on you.
Without strong motivation, all sellers will list too high and not sell – every year, every market.
3. The move-ups aren’t moving up.
I think we are in the midst of a substantial societal shift in culture, where we are getting used to having less, and liking it.
My rule-of-thumb is that you have to spend 50% more than you are getting for your old house, to make it worth it to move up. You can’t sell for $700,000 and buy for $800,000 in the same area – you don’t get enough extra.
It turns out that staying put isn’t so bad – whether the cause is the unwillingness to pay more, can’t qualify for more, or just being stuck with the over-encumbered housing handcuffs.
You would think that the lack of move-up buyers would inhibit the upper-end market. But there are three other categories of high-end buyers – those that sold at the peak and have waited, the out-of-towners (out-of-country in particular), and first-timers – who have been picking up the slack, apparently. We just had first-timers pay $1.75 million for their first, and probably last, house.
For the SD area I think you would need builders to start building again before you would even think about the move-up market, (need something to move to).
Need to sell at higher price to pay the builders as well,
Not everyone is in the market for a custom built home, but I have started to see a few of these go up here and there along with complete tear down and rebuild
The problem is that prices have gone so low that anyone who bought from 2003 on is looking at a non distressed short sale.
I could short sell my house, walk away with no money for a downpayment on the next house and be forced into renting for 2 years while the housing marker recovers. Why would I do that?
Just like there was a pent up demand to buy by people who could choose to sit out the bubble there is probably a pent up demand to sell building right now. The economy is starting to look better and people are hopefully about future price increases so you might as well hold on a little longer if you can.
Most analysts and bloggers have made a case for 2012 being the bottom in prices, so I think people are hopeful those predictions happen so they wait it out. You short sell when you think it’s never coming back, you wait when you think if I just hold on it will get better.
The life happens (job relocation, divorce, etc.) homes will still come on the market and the trickle of shorts and foreclosure will continue to show up but it might be slow sales for awhile. You’d probably need a major external economic event to trigger much action in the real estate market. The grind goes on.
I expect a price bottom toward the end of this year or early next year in the sub $1MM market (Sonoma County). The demand for those homes is mostly local. The $1MM plus market has a completely different demand and although there were too many homes built in the $1MM-$2MM range during the bubble most of them simply don’t measure up. The build quality is often bad and the “Estate” lots vary tremendously in quality.And what can you convert them into, brothels?
If you hold properties off the market and have fannie and freddie take the losses does it really matter?
Start foreclosing again and clear out the deadbeats.
deadbeats are votes this day and age.
Of course the problem is nobody has the real number of distressed homes in these “free rent” program. This creates uncertainty, and with uncertainty, if someone is not dead, divorced, or relocating, they will not move.
Reasons for Low Inventory?
Only the “shadow” knows. Get it? 🙂
Number of comments made by shadash – 97
Number of comments made by shadash using “deadbeats” – 95.
Got anything more original??
All our ills can be explained away with deadbeats, regulations, and illegals.
OC – Yeah right! Wall St, the banksters, and lack of regulations had nothing to do with our ills.
Got anything more original??
Why should he change when he’s right? 😉
Jim nailed it with #3 — the move up market is DOA. The people winning the bidding wars these days are not representative of a normal market as shown by their exceptionally deep pockets.
Stormin, please look up sarcasm, thanks.
Sorry OC – I missed it – my bad 🙂