Have you heard? Housing inventory is way, WAY DOWN!!! I mean, seriously down! There simply just is not enough homes for sale to satisfy the buyers currently shopping for homes. And they are shopping HARD. Many home buyers are desperately trying to purchase their home before the FED raises the interest rates. We are seeing inventory getting better, but its been a painful go of it!
HOW DID WE GET HERE?
OK, let’s quickly review how we ended up with such low housing inventory and not enough homes for sale. We really have to go waaaaaaaay back BEFORE the housing crash of 2008. Yes, that far back!
Remember when homes were flying off the shelves and buyers were bidding higher and higher? Do you remember lenders loaning money like they had the Federal Reserve printing banknotes in the back? The banks and mortgage lenders would loan money to anyone with a pulse. Wait… I take that back. There were a few dead guys getting home loans too!
This careless loan approval process, if you can call saying “Yes” to everyone a process, drove home prices through the stratosphere! Everyone bought a home, even if they couldn’t afford it. Families bought homes; people with stated income bought homes; strippers counted their dollar bills and bought homes! If you had a Social Security number you could be a homeowner, sometimes even if that Social Security number wasn’t yours. (By the way, Stated Income simply means the borrower “states” what their income is, without ANY verification! Seriously! Check it out here)
Plain and simple, it was like a ponzi scheme. Eventually home prices got so high that the top-heavy market crumbled. There’s some other crazy-complicated stock market stuff that contributed to it too, but this is a blog not a book. Take a look at the movie The Big Short. I think it’s still on Netflix. It’s a very well-done movie with great writing and acting, and it did a good job explaining how Wall Street sliced and diced mortgage loan bundles into oblivion. But, it took the entire movie to explain what happened with the secondary mortgage markets…
So when the housing market crashed many people lost their homes. But not everyone! Many held on. Many people stayed put, holding out because they could and because they didn’t want to take a loss. But this has dragged on for a few years with various homeowners being underwater in various severities. When one neighbor could finally sell, another was still trying to catch up to what they owed. This has caused a sort of purgatory for some areas and sellers.
WHAT DOES IT MEAN NOW?
So let’s now fast-forward to today. Enough time has passed and many underwater homeowners have caught up, foreclosed or short sold. We finally are seeing current prices closing in on pre-crash prices, where many homeowners need them to be to satisfy what they owe. There is also a portion of the population that can’t quite sell or refuse to sell because they can really only wash their hands of their property. That also takes some potential supply out of the market. There’s another portion of sellers that WANT to sell, but they feel they won’t be able to find anything to buy! It’s no secret that inventory is low. It’s a catch 22.
Housing also recently went through another shock to the system that many are not recognizing enough. Last year’s presidential election has caused a sort of murmur in real estate. Not enough to completely derail the markets, but the social upheaval has really done a number to people’s home buying, relocation, upgrading or downgrading plans. We’ve seen other elections do this as well, but this one seems particularly irritable.
And there’s one last thing that’s still got a shank in the side of real estate, threatening to plunge further into the gut of housing: loan modifications. Way back when, many distressed homeowners where trying to save their homes. And the federal and state governments where passing a myriad of laws to help those distressed homeowners. The banks, with the government’s persistent nudging, started rolling out the loan mods en masse.
But there’s a nasty little secret sitting at the back of those loan mods. Many of them still benefited the banks with creative monetary sorcery, with tricks like delayed arrears and interest rate manipulation! And now, with programs expiring and modifications maturing, many homeowners that originally saved their homes back in the day are just now finding out that they owe even more than they ever should have! It makes me feel gross just thinking about it.
So what will happen to these bamboozled homeowners? One of three things can happen: Either they stay in the home and swallow the agonizing reality, they give up and let the home go to foreclosure, or they short sell! I’m betting that because they’ve come this far and waited this long to save their homes and their credit, short selling will be their go-to solution. I’m not suggesting that short sales will swamp the market again, but I believe they will have their place.
SO WHAT’S GOING TO BREAK THE DAM?
There’s already spreading cracks in the barricade. But the real answer to this question is… no one really knows. Do we agonize through the sludge slowly and over another decade? Does something terrible happen that tanks the housing markets again? Does something great happen, like a banging U.S. economy (sorry, I grew up in the 80’s) that helps grow housing even more? I don’t know. You don’t know. No one knows, really. Anyone that says they do is lying to you, and to themselves. But that doesn’t make the attempt to understand it futile. It just really complicates it! 🙂
So now here comes the sales pitch… If you’ve considered selling your home and helping out some poor desperate buyer, give us a call and let’s talk about what your property could be worth, AND what you’ll walk away with after everything is said and done. And we’ve handled a TON of short sales too, if that’s what you need to do.
There’s no obligation, it’s free, and we won’t get weird and pushy if you decide you’re not ready or that it’s not what you ultimately want to do. So call us! And thanks for reading our blog!
-Todd J Garrigus Broker, Garrigus Real Estate