There is a strong increase in buyer activity this year…but inventory is still down. Why are potential sellers not listing their homes.
Existing-home sales are up nearly 5 percent from last year, but sales would be much higher if it wasn’t for the negative equity overhang, economists say.
The National Association of REALTORS® recently reported that existing-home sales increased 4.7 percent in February compared to a year ago.
But with an improving labor market, home sales should be even higher, Mark Fleming, chief economist at First American Financial Corp., told The New York Times. Home prices are higher too, which often correlates with rising home sales, according to Fleming’s research.
“Rising prices only crimp affordability for the first-time buyer who doesn’t yet own the asset,” Fleming told The New York Times. “But the vast majority of home sales are to existing home owners. And for existing home owners, what changes affordability is their own income and the price of money.”
However, too many home owners (potential sellers) still lack sufficient equity in their homes to sell, Fleming notes. Home owners (potential sellers) who have equity below 20 percent are less likely to sell because they may not be able to cover the costs of the transaction.
About 35 percent of home owners(potential sellers) nationwide are either in a negative equity position or have equity below 20 percent, according to some industry estimates.
The equity picture has shown much improvement recently. CoreLogic reported earlier this month that 89 percent – or about 44.5 million — of all U.S. properties with a mortgage had equity by the end of the fourth quarter of 2014.
What’s more, if home prices rise by an additional 5 percent, about 1 million more home owners (potential sellers) in negative equity stand to inch back into the black. However, much of the equity is concentrated at the high-end of the housing market (94% of homes valued at more than $200,000 have equity compared to 84% of homes valued less than $200,000).
Also, many home owners (potential sellers) remain “under-equitied” – having less than 20 percent of equity in their homes. Nearly 50 million properties – or 20 percent – are considered “under-equitied” in the U.S., and about 1.4 million of those properties have less than 5 percent equity, which his considered “near-negative equity.”
According to CoreLogic’s report, the states with the largest number of negative equity, as of the fourth quarter of 2014, are: Nevada (24%); Florida (23.3%); Arizona (18.7%); Illinois (16.2%), and Rhode Island (15.8%).
Last year, the spring selling season failed to meet market expectations, but many housing analysts say that 2015 will be different and the market may have finally reached a long-awaited “sustainable recovery.”
The uptick in home sales in recent months is early indication that the “market is continuing to improve at a very steady pace,” Stuart Miller, chief executive of Lennar Corp., said in a conference call with investors last month. The nation’s second largest homebuilder reported an 18 percent sales gain in the quarter ending Feb. 28, compared to a year earlier.
Last year, the spring selling season failed to meet market expectations, with sales of new and existing homes in 2014 mostly flat. The dismal selling season last year was most attributed to, at the time, continued weak consumer confidence, steep home price increases from the previous year, and an uneven economic recovery, The Wall Street Journal reports.
But housing analysts believe 2015 is different. Here are a few reasons why:
- An improved economy: The economy has added 3.1 million jobs in the past year alone. Also, low gas prices lately have helped to lift consumer confidence.
- Mortgage lending is easing: Lenders have shown signs of easing tight borrowing requirements and costs (see FHA Lowers Its Mortgage Costs and 3% Down Payments May Be Game Changer).
- Boomerang buyers return: Former home owners who had lost their home to foreclosure in the aftermath of the financial crisis have repaired their credit and many are stepping back in to try to qualify to buy a home again.