New Housing Crisis: Not Enough to Buy

There is a common misconception out there regarding the housing crisis which is there are too many homes for sale.  Reality Check.....there aren't enough home for sales.


We have talked about this point in previous points and more specially I have personal experience when it comes to this issue.  When my wife and I were looking for a new house in Metro Detroit last year we were shocked to find the low level of inventories of houses on the market.


To find a house that was in a good neighborhood, good school district, and didn't need a major makeover was extremely hard to find regardless of the price range.  We were finding situations with houses that had multiple offers, houses on the market for days not weeks.


Speaking with one of my realtor contacts last week she had confirmed that he market was even tighter this year than last year.  My contacted noted that people were in for a rude awakening given the perception that it was still a buyers market.  In some areas bidding wars are back which isn't the headlines you necessarily read about.


So what gives?  This situation certainly does not mean that the housing crisis is over, far from it.  People are still upside down on their mortgages, people are still in the foreclosure process, but it is the banks who are still upon piles of houses that they aren't ready to release back into the market. If banks were to flood the market with inventory that would have to take the hits as actual loses which aren't showing up on their balance sheets currently.  It's the whole mark to market conundrum.


Diana Olick Real Estate Reporter for CNBC filed this report covering this very topic.

• There are currently 2.49 million for sale, a drop of 20 percent from a year ago. To make matters worse, supply is lowest on the low end, where so much of the investor activity has been over the past several years.
• The median price of an existing home, as reported by the Realtors, rose 7.9 percent in May annually, but NAR chief economist Lawrence Yun was quick to point out that this does not mean the average home owner gained that much equity; it is simply a big shift in the type of home that is selling. Sales of homes priced under $100,000 dropped two percent from a year ago, while sales of homes priced between $250,000 and $500,000 shot up nearly 29 percent (though still at low volumes historically). Again, this is due to lack of supply on the low end, specifically distressed homes.

NicK White | Cultura | Getty Images

• Fear is clearly a factor, as is negative equity. Between 11 and 12 million borrowers still owe more on their homes than they can sell them for, and many more borrowers in a near negative equity position; that means they can’t get enough equity out of their homes to cover the Realtor fees and the moving costs, nor to put down on a new home. That’s why the market is ripe for first time buyers, but they are not stepping up either, at just 34 percent of purchases. In a normal market, they would make up 45 percent. That, again, is part fear, but largely tight credit.