Activity in the local housing market has picked up. What that means is that people are buying homes. The first time home buyers are out in full force. The move up buyers are no where to be found. A move up buyer is someone who sells their home and buys another. Usually what they buy is bigger than what they had.
They have not disappeared they just are not buying homes. Either their current home is on the market and slow to sell or they can't put their home on the market because they don't have enough money to sell it and to buy a new home.
I met with two would be sellers this week and in both cases if they sold their homes they would need to bring a significant amount of money to the closing, leaving them with nothing for a down payment on another home. I am writing this for the would be sellers out there so that you know you are not alone.
There is a kind of pent up demand for move up homes. There are people who would like to buy a new home but can not. They would like to sell but can not. They will be able to sell but they will have to wait until they have more home equity.
There is evidence that some of the homes that were listed last year never sold. I noticed some homes that had been on the market and were a bit over priced last year are this years foreclosures. There are also homes that were on the market last year that never sold. Some are vacant, and not on the market leading me to believe that they will become foreclosures.
As for the local housing market in general, yes sales have picked up from the all time low and there is evidence that in some areas prices are going up slightly. The prices hit rock bottom in the neighborhoods with the highest foreclosure rates.
When the foreclosures are sold the average home price will be higher but I don't think the value of the average home will have gone up. The national news media made a big deal about housing prices having gone up for the first time in ten months. The information is a bit misleading at least in out market. Fear not home buyers prices are still low, as are the interest rates.
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I’d like to address the idea of pent-up demand and supply.
An underwater homeowner is not really an example of pent-up demand. While they may *desire* a move-up house, they also represent a future house that will be need to be sold. Since their house is not available for sale since they can’t afford to pay at closing, the economic net effect of this is zero. One pent-up buyer, one pent-up seller.
Consider another hypothetical case. Imagine a homeowner who has a paid-off mortgage, and has two years until retirement, at which time they might sell, but have no interest at the present time.
There is NO DIFFERENCE between the future retiree and the underwater homeowner. Both are simply not part of the current supply/demand equation.
The underwater buyer’s DESIRE to move up must not be confused with DEMAND, which is what actually drives the market. What the underwater folks are is POTENTIAL future demand.
What I never see anyone else comment on is the economics of this future pent-up demand.
Suppose the homeowners are 30k underwater. They can move up by paying off principal or waiting for appreciation, or a combination. When they finally hit the break even point, where will their next down payment come from? Sure, they can use DAP, but if prices have recovered that much, then they are buying into an expensive market again in the same basic position as a zero-down buyer.
This requires them to trade one zero-equity debt for a much larger zero-equity debt. And for 3% per year appreciation.
It is probably just as well that many people do not realize how very long it will take to dig ourselves out of this.
Good points and yes both paying off the existing home and coming up with a down payment is the problem. Most of these folks can do one or the other but not both and they are doing a combination of waiting and saving money hoping that they will get to the point where they owe less by paying it down, and maybe see a little appreciation or at least stability and at the same time they are saving.
I think a lot of people are still a little uninformed about how significantly foreclosures can impact home sales prices. I talked with a prospective client not too long ago in Orlando. Her home was valued at around $350,000 a year ago, and had dropped to about $295,000 as of about three months ago. Then, two foreclosures listed in her neighborhood – sending her appraised home value down to about $220,000.
Hopefully this means the housing market will finally improve after being such a mess for so long. I think once the economy improves you will see more people upgrading to a bigger and better home as well.