In a perverse turn of fate, people who can’t afford to sell their homes may be boosting the prices of existing homes on the market by limiting inventory. In fact if you are having a tough time getting a Realtor to return your phone call, shame on you: use email or text. They are pretty busy writing contracts right now. Two examples to report: see this cute house at 4048 Courtshire Drive, 75229 over near Marsh/Forest? It’s under contract. This is a report not from the agent, but a buyer — someone out there looking for a home:
“I know offers were made above asking price on 4048 Courtshire. An open house was held after the property was under contract and swarms of people still came. It’s a great house with a great story for the state of the market. You should get the full story from the listing agent!”
Then tonight agent Joe Atkins writes to tell me about how homes are selling north of 635, where we always think it is so dead, and so boring because no one is ever killed up there. Joe is describing a listing in PLANO:
“I just listed this property on Friday afternoon and by Sat at 7pm I had 15 showings and 4 offers. I had to call the showing service and block showings while waiting to get the executed contract back because so many people were trying to show the house. I even had agents that wanted to send in offers without showing the house. The real kicker is, this is not a foreclosure and it was not priced below the comps. The market is back and booming in Central Plano.”
Wow, the market’s back, right? Not so fast.
I’m pretty bullish on real estate, and I still think this is a great time to buy. It may even be cheaper than renting if you can get financing or pay cash: DFW apartment occupancy is at 94.1%, and between April and June, renters leased more than five times the number of units that were completed in the quarter, or 1,563 units, said Greg Willett, vp of MPF Research. In all, more than 8000 apartments were leased in the area. Rents are going up, 1 percent in the second quarter on new leases, and 4.3 percent from this time a year ago, according again to MPF Research. Of course, hotter the area, the higher the rent increases: in Grapevine and north Fort Worth, rents have risen as much as 6 percent from a year ago. Rents are up as much as 8 percent in Uptown and Oak Lawn. People are moving here, they rent to scope out the market. People are shedding homes they cannot afford, they rent. People going into foreclosure, they rent. You need decent credit to rent and maybe a couple months’ rent as a security deposit, but it’s a whole lot cheaper than buying.
One of my most trusted resources I read in the biz, Jonathan Miller, says this: low housing inventory is NOT a sign that the market’s back, it’s a sign that some people, the upside downers, maybe CAN’T list their home. When you have negative equity, you don’t have enough equity to buy the next home, even if it is a cheaper home. Hell, you may not even have enough cash to pay a mover. What do you do? You stay put if you can squeak by, make the monthly payments. You do not pass go, you are stuckola. You pray one of you doesn’t get transferred.
I can see this scene clearly across the country. Here in Dallas, maybe not so much. Remember how our state laws protect us from borrowing too much home equity. Still, there are folks who could be top heavy in their homes, have invested way more than they think they will get out of a sale. If they break even, maybe, but if they need to take cash to closing, they would rather wait out the market, wouldn’t you?
Course, sometimes I get all doom and gloomy and I wonder what it is we are waiting for. Will it really ever get any better? Maybe this is as good as it gets. Sometimes I worry this robust market is a decoy, a way to make us feel all peppy and ebullient before the election. Just call me Debbie Downer.
Here’s what another respected buddy, Zillow’s Stan Humphries, says:
What markets like Miami and Phoenix may now be showing us is that negative equity has another very powerful effect on the supply side beyond increasing the flow of foreclosed homes onto the market: all the households that we predicted would be trapped in their homes and unable to buy new ones are similarly unable to sell their current homes, severely decreasing the overall supply of homes on the market. Of course, we knew that trapped homeowners represented both a loss of supply and demand; we just tended to focus on the demand side of the equation more than the supply side. From an economic perspective, this wasn’t crazy since we expected that any increase in demand could easily be satisfied by “sidelined sellers” – people who tried or wanted to sell their homes during the recession but were unable to – being enticed back into the market by rising home values.
Well, it turns out that many of those sidelined sellers may no longer be able to sell their homes because they are underwater on their mortgages now. And negative equity may well be so constraining the supply side of the housing market that it’s creating acute inventory shortages that are bidding up prices.
Interestingly, in Phoenix, Stan says prices have appreciated more at lower price tiers than higher price tiers. Why? Less inventory.
This is why Stan told us at NAREE to expect more of a stair-step recovery scenario, rather than a flat, drawn out bottom.
Still, the Debbie Downer in me says this: we have rents going up. We have home prices going up at the lower price tiers, all of this making it harder for new buyers, kids in their twenties, anyone who doesn’t have a chunk of dough from family or savings, basically anyone who is not a member of the lucky sperm club to buy or even have a nice apartment. Guess they’ll have to cram in and share, or stay home with mom and dad if they are still in their homes! First time home-buyers, so glad you got that little gift from Washington a few years back. Because if rent prices continue to go up, the government is going to have to step in with “Rent Medicaid”.
Heaven help us.