Will The Real Housing Market Please Stand Up?
According to all accounts, housing inventory is very low.
Here in Orange County, California inventory levels are back to numbers last seen in 2005.
In fact, in California, housing inventory is so low that the NAR and certain Democratic congressmen are trying to block the government’s REO bulk sale for rental plan.
This move is being spun as a battle between the 1% and the 99% , but the reality is that inventory is so low that the NAR wants to grab whatever inventory they can.
Why are inventories so low?
There are not enough equity sellers in the market. Since more than 30% of homes in the US are underwater, those homeowners are unlikely to sell unless a lifestyle change requires it. If those sellers can hold on, and wait for the market to recover, they will and are staying put.
Even homeowners who bought their homes over 15 years ago, and therefore are less likely to be underwater, may choose to wait to sell. If they are close to retirement and downsizing, they may wait until the market brings them a higher price.
Zombie homes have yet to come onto the market for primary residence buyers. The settlement on the Robo signing agreement has resulted in a fresh push to modify mortgages for troubled owners. The government is trying to push its REO bulk selling for rentals. Even Bank of America is test piloting a rental program. Also, the process of getting a home through foreclosure or a short sale is just talking way too long. I
It is clear that the current low inventory is not due to an increase in demand, which would be the case in a recovering market, but is due to factors related to an unhealthy market. The combination of a lack of willing sellers, and an unproductively long foreclosure and loan modification process have finally taken their toll.
At some point these Zombie homes will come onto the market as either REO bulk sales, auctioned at court house, short sales , or burnt to the ground. S&P recently reported that there are 46 months of distressed properties still to be worked through. It would be prudent to get these homes to the market much quicker, while interest rates are low and buyers have a chance to qualify.
Once interest rates rise, as they inevitably will, buying a home will be less attractive or, in some cases, impossible.
Once we see supply and demand balances corrected , once organic buyers and sellers return to the market, once the economy is on stronger footing, we can begin to hope for a sustained recovery in the housing market. Until that happens, the real estate market will remain a market mired in murky water, being buoyed up by cash buyers, at the same time it is being held hostage by the heavy ropes of uncertainty.
Logan Mohtashami is a senior loan officer at his family owned mortgage company AMC Lending Group, which has been providing mortgage services for California residents since 1988.
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