According to CoreLogic, in April home prices rose over 12% nationwide. This was the highest year-over-year home price increase in over six years. Yet in spite of these escalating prices, relatively few home owners want to sell homes.
The National Association of Realtors reported that at the peak of the market (2007), there were 3.4 million single family homes (SFR) for sale. Today we have only 1.9 million SFRs on the market and one may wonder: how come?
There are several plausible explanations. First, there are too many “under water” homes with mortgage indebtedness exceeding the value of the property. According to Zillow, over 25% of all Single Family Homes have values below the mortgage balances. Homeowners with under water (aka upside down) properties have several options, but none of them is easy and without consequences.
Option one: come up with cash to pay the difference between the sales price and the mortgage balance. Option two: do a short sale if the mortgage holder accepts lesser pay off than the loan balance. Option three: walk away from the property and let it fall into foreclosure. Option four: rent out the property till it appreciates high enough to sell it.
Another issue home sellers face is a high degree of uncertainty regarding buying replacement properties. This uncertainty may originate from different concerns. One is lack of sufficient equity in the property they are selling. The other might be related to the state of the economy – e.g. if one is concerned about losing his/her job, he/she won’t feel confident about buying another house.
Additionally, there is an issue of inadequate inventory of new homes due to limited construction. Very few new homes were built in the last five years during the Great Recession. Finally, some owners are simply holding on in hopes of getting higher sales prices in the future. Historically, property values have always recovered from recessions and slumps. Many owners think this time will be no different and the recent property value appreciation seem to confirm this notion.
the inventory of homes for sale is