Six Reasons Housing Inventory Keeps Declining

By Nick Timiraos

 
Associated Press
The number of homes for sale fell to 1.82 million at the end of 2012, an 8.5% drop from November.

Home sales in December dropped by 1% from November, the National Association of Realtors reported on Tuesday, but still stood nearly 13% above the levels of one year ago. That means home sales have risen from the year-ago month for 18 straight months.

For 2012 as a whole, sales were up 9% to 4.65 million units, the highest annual total since 2007.

Prices, meanwhile, are picking up because the number of homes for sale continues to drop despite the sales volume gains. The number of homes for sale fell to 1.82 million at the end of 2012, an 8.5% drop from November and a 21.6% decline from one year earlier, the Realtors’ group said on Tuesday.

Here’s a breakdown of why inventory has continued to drop this year:

Many homeowners are underwater: More than 10 million homeowners owe more on their mortgage than their homes are worth, according to CoreLogic Inc. CLGX +1.11%That pencils out to around 22% of homeowners with a mortgage, or 15% of all homeowners (since not every homeowner has a mortgage). Underwater owners aren’t likely to sell unless they need to move due to changing life (marriage, divorce) or financial circumstances, and they’ll take a hit on their credit for pursuing a short sale, where the bank allows the home to sell for less than the amount owed. Data from CoreLogic show that inventory has been the most constrained in housing markets where there’s the largest concentration of underwater borrowers.

Others don’t have enough equity to “trade up”: Another 10 million homeowners have less than 20% equity in their current residence, meaning they can’t easily “trade up” to their next house. Traditionally, homeowners have relied on home equity to make the down payment on their next home, and to pay their real-estate agent to sell their current home and buy their next one. These “under-equitied” homeowners—meaning they don’t have enough equity to make a move to a more expensive home—have added to the drag on inventory.

Everyone wants to buy at the bottom, but few want to sell: Even those people who do have plenty of home equity are likely reluctant to sell if they think prices will be higher tomorrow. Would you sell your largest asset today if you thought it might be worth 5% more next year? This helps explain why markets such as Denver and Dallas, which didn’t have huge housing bubbles and thus had smaller shares of underwater borrowers, have also seen double-digit inventory declines.

More purchases from investors of all stripes: From the big institutional investors that have been grabbing all the headlines, to the mom-and-pop landlords that have traditionally played a much larger role renting out homes, investors have increasingly bought homes that can be rented out rather than flipped and resold for quick profits. This is further keeping inventory off the market in two ways: homes that are bought at courthouse foreclosure auctions never show up on multiple-listing services when they’re initially sold. They’re also held out of the for-sale pool because they’re being rented out.

Banks have been slower at foreclosing: Banks and other companies that process delinquent mortgages have had trouble proving that they’ve followed state law in taking title to homes ever since the “robo-signing” scandal surfaced in late 2010, and they’ve also had to meet a host of new state and federal rules governing loan modifications and foreclosures from settlements spawned by the robo-scandal. Banks have also become better about approving short sales and loan modifications, which has curbed the flow of foreclosed properties onto the market.

Builders have been putting up fewer homes: Housing starts were severely depressed from 2009 through 2011 and have only recently rebounded off of those low levels. Consequently, there’s been much less new home inventory being added to the market at a time when demand (boosted by increases in household formation) is picking up. If more homes are held off the market—for any of the five reasons above—you can bet that builders will move in to fill the void.

Many of these factors that have been dragging down inventory aren’t signs of “normal” or “healthy” housing markets—but then, we probably haven’t had a normal market for around a decade now. If anything, declining inventory shows that normal supply-and-demand dynamics are returning, which is an important step towards putting a floor under home prices and giving markets time to get back to health

What’s It Going to Take?

How much evidence is needed to make a decision to get out of the rent race and become a homeowner?thumbsupdown.jpg

Compare your rent with a mortgage payment on a similar size property. If you want a larger home than your current one, use the rent that property would require instead of what you’re currently paying. If it’s considerably cheaper, you may not need any further encouragement.

By the time you consider the principal reduction, appreciation and tax savings, your monthly cost of housing could be much less than the rent you’re paying.

The principal reduction included in each payment is like a forced savings account that increases as your mortgage balance decreases. Your equity in the property will also grow due to appreciation. The equity is part of your net worth and an investment in your family’s future.

The income tax savings can be an additional financial consideration if the combined interest and property taxes exceed the allowable standard deduction.

Trends are showing that both tenants and homeowners are staying in their homes longer. It’s been said that whether you rent or own, you’re paying for the home. Do you really want to buy the home for your landlord? Check out your numbers on a Rent vs. Own.

Selecting the Right Color

Have you ever picked a color from the myriad of paint samples available, put it on the wall and decided that it was all wrong? It shouldn’t have to be that difficult but trying to pick the perfect color from those little swatches is just not that easy.paintcolor.jpg

Painters and decorators suggest you buy a small amount of the colors you’re considering. Your paint store should be able to mix them in any brand and any color. Once it’s on the wall, it will be easy to determine if it needs to be lighter or darker or if it’s completely wrong.

Take them home and paint a 2′ x 2′ area on the wall. If you’re concerned about testing the colors on your wall, you can paint some sample boards that can be easily moved around to see how they’ll look with the furniture, floors and other items in the room.

Instead of guessing what it’s going to look like, you’ll actually see how it looks during different times of the day, in natural and artificial light.

While $30 to $40 a gallon for paint may seem like a lot of money, the cost in time and labor to put it on the wall is even more. It’s worth taking the time to test the color on the wall before you buy all the paint needed

Trending on HGTV.com: How to Paint Furniture

 

  • We’ve seen a spike in the number of online readers searching for tips on how to paint furniture. It’s a quick, inexpensive way to give old pieces a dramatic new look, which can transform an entire room.

Designer Tyler Wisler says, “Painting is always the easiest and quickest way to give any outdated piece of furniture an instant makeover, but the key to all of it, regardless of the color choice, is to prep. Prep, prep, prep those pieces correctly! Just grabbing a can of paint and having at it will inevitably end in cracked and peeling paint in no time. A good once over with a fine grit sandpaper, then a thorough wipe down with a damp cloth to get rid of any dust particles, is the simplest way to get the paint to stick to the piece and will last so much longer!”

How to Paint Furniture

If you want to give it a try, follow these “8 Simple Steps on How to Paint Furniture.”

After you’ve done the prep work, get creative!

The October/November 2012 issue of HGTV Magazine featured DIY projects using inexpensive mini sample jars of paint.

How to Paint Furniture with Sample Jars of Paint, from the Experts at HGTV Magazine

If you’re going for a vintage look, check out our step-by-step guide on “How to Distress Furniture.”

How to Distress Furniture

BUY NOW NOT LATER

Sooner is Better than Later – 1/14/2013

Buyers who have delayed purchasing a home due to concerns about what might happen to the tax laws affecting home ownership should feel comfortable about getting back in the market. The recent legislation passed by Congress and signed by the President continues to value homes as a favored investment.

 

Whether the delayed purchase is for a home to live in as your principal residence or to use as rental property, taking action sooner is better than later.

Reasons to buy now:

  1. The house payment with taxes and insurance is probably cheaper than the rent.
  2. Rents will continue to rise making the difference even greater in the future.
  3. Lock-in the principal & interest payment with a fixed-rate mortgage.
  4. 30 year mortgage terms are available to most borrowers.
  5. The mortgage interest deduction is intact for the majority of taxpayers.
  6. The capital gain exclusion for principal residences up to $500,000 remains in place.
  7. Prices are going up due to lower inventories and several years of low housing starts.
Contact me about any specific questions you have or information you need.

First-time Home Buyers Face Greater Competition

 

Daily Real Estate News |      Friday, January 11, 2013  

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First-time home buyers are playing a larger role in the housing market, but they’re finding big changes.

Thirty-nine percent of home sales nationwide were from first-time home buyers during the 12-month period ending June 2012, according to the National Association of REALTORS®. That’s up from 37 percent a year earlier.

But while first-time home buyers once had a huge inventory of homes to choose from, now they’re finding tightened supplies and steeper competition for what’s left.

Housing inventories are hovering at record lows in many markets, limiting supply. First-time home buyers face increased competition from investors, who are often trying to snatch up the same bargain-priced housing deals. Investors often make all-cash offers, too, which makes it difficult for buyers requiring financing to compete against them. Also, banks have tightened up their underwriting standards, creating more hoops in just qualifying for financing.

It’s not easy to be a first-time home buyer, some say. But first-time home buyers are critical to a healthy housing market. They allow existing home owners to sell and trade up into larger homes.

To respond to the changing housing market, first-time home buyers may need to broaden their search and be more “flexible and compromise,” says Chip Rowand, a Broward County, Fla., real estate professional.

Also, first-timers shouldn’t automatically settle for a Federal Housing Administration mortgage due to the low down payment requirements (usually 3.5 percent of the purchase price). The FHA can have several restrictions that makes some sellers prefer buyers who offer cash or who are using conventional loans, says Stephen B. McWilliam, president of Greater Fort Lauderdale (Fla.) REALTORS®. Some conventional loans require just 5 percent down and so may serve as an option for first-timers.

First-timers also need to be able to act fast and be able to have their financing processed quickly if they are going to stay competitive. Some banks won’t sign off on mortgages for eight to 12 weeks. But some sellers won’t wait that long. Some housing experts suggest first-timers look into working with a community bank or local mortgage banker, which often don’t have as long a wait.

Mortgage Rates Edge Up This Week

 

Daily Real Estate News |      Friday, January 11, 2013  

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Thirty-year fixed-rate mortgages, the most popular among home buyers, reached their highest reading in eight weeks, Freddie Mac reports in its weekly mortgage market survey.

“Fixed mortgage rates increased slightly following a positive employment report for December,” says Frank Nothaft, Freddie Mac’s chief economist. “The economy added 155,000 jobs, above the consensus market forecast, and November’s job growth was revised upward by another 24,000 workers. This helped keep the unemployment rate steady at 7.8 percent, the lowest since December 2008.”

Here’s a closer look at national averages of mortgage rates for the week ending Jan. 10, according to Freddie Mac.

  • 30-year fixed-rate mortgages: averaged 3.40 percent, with an average 0.7 point, rising from last week’s 3.34 percent average. The record low for 30-year rates was reached on Nov. 21, 2012, averaging 3.31 percent. A year ago at this time, 30-year rates averaged 3.89 percent.
  • 15-year fixed-rate mortgages: averaged 2.66 percent, with an average 0.7 point, increasing from last week’s 2.64 percent average. Last year at this time, 15-year rates averaged 3.16 percent.
  • 5-year adjustable-rate mortgages: averaged 2.67 percent, with an average 0.6 point, dropping from last week’s 2.71 percent average. Last year at this time, 5-year ARMs averaged 2.82 percent.
  • 1-year ARMs: averaged 2.60 percent, with an average 0.5 point, rising from last week’s 2.57 percent average. A year ago, 1-year ARMs averaged 2.76 percent.