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4 Biggest Reasons Housing Inventory Levels Are So Low

Where are all the homes for sale? In Massachusetts this month, there are 24,347 homes available for sale, 23% lower than this time last year. As shown in the chart below, inventory levels have dropped every year since 2008.

Spring is the peak season for real estate and if you’ve started your research, you may have noticed some home inventory is low to learn the four reasons why that is, we bring in our real estate experts John and Anthony from Lamacchia Realty and if rumors are true just to clear it up you guys did bring your own makeup artist this morning

Because we’re filming some ads right after this just to clarify that

That’s only him, this is natural

We’ll get to the four reasons here in just a minute this has become a huge issue because there’s a shift not only in the state but nationwide in the real estate market is really to root of so many  issues that we’ve had over the last couple of years with our economy but I want o start with home sales declining in February 5% what happened there?

Not surprising. I’m actually surprised it took that long. The reason I say that is because the inventory has been going down for about 14 months so it was only a matter of time that when the product in this case houses decreases to a point that there aren’t enough out there for people to buy you’re going to see total sales go down it finally happened in February it’s not a bad sign for the market though.

It shouldn’t continue we should see a flattening out hopefully in the next couple of months

Spring obviously a big time for both buyers and sellers let’s talk about the 4 reasons why this inventory seems very low a lot of people out there the regular person going to buy that just can’t’ find the right value in the home they’re looking for and there’s a couple of issues with that but number one you have homeowners waiting on the value of their home to go up before they sell

That’s right and you see that in any market where you see appreciation folks who bought at a certain time or have a set number in their head where they have to get say $500,000 they want to wait. And they say ok let the market continue or I don’t want to lose money because they invested a certain amount they added an addition, and whatever it might be and that’s definitely causing sellers who could absolutely sell for top dollar not to put their home out we don’t agree with that decision but we’re seeing that as a common issue.

I just want to clarify why we don’t agree people are also buying a new home so sometimes we have to remind hey listen if you can get $450,000 but in 2 years you can get $500,000, wherever you buy you’re going to pay more as well so in the end it evens out.

And another reason why and a lot of people have found themselves in this position really if they’ve bought at the wrong time over the last couple of years they’re underwater.

That’s right.

There’s still a large, not a large, I’d say the percentage of people who are underwater it’s undoubtedly going down, without any question but there still are people who are either underwater or for example they owe $280,000 on their house and their house is worth $300,000, so if they sold they wouldn’t get any money so those people are holding off putting their homes on the market as well.

Because they need some of that equity for a down payment so if the numbers are too tight, say within 5%, even 10%, they may not have enough equity to make the move.

And a third reason you have if someone who is selling and might want to buy first, they’re waiting for another home to move into they don’t want to get stuck having to rent for a couple of months

Yeah and that’s something that’s happening all the time. I even have personal friends that are going through it right now they want to put their property on the market but they’re hesitating and say well I’m not seeing anything I want so now it’s a vicious circle, we have sellers hesitating to go on because they’re looking for new properties and it just makes the inventory go down.

You have to have a plan B, Plan A is you sell and then you find something, but if you can’t do that once again, renting is not a bad 4 letter word to rent for a period of time is ok, even if it’s extended stay, furnished housing, you have your stuff in storage, not ideal but right now it’s such a great time to sell, that you want to sell for top dollar, and you will find the right opportunity.

And investors are coming in now and picking up a lot of the homes, you see a lot of foreclosures and short sales that are down, as opposed to years past maybe an investor coming in to flip the house financing through a bank, there’s a lot of investors paying cash right now and someone who may not have that cash to pay for the home it’s tough for them to compete with that.

It is, first time buyers are getting frustrated because they can’t compete with an investor who goes to a bank and says hey I’ll pay cash and I’ll close in 2 weeks versus the first time home buyer that’s got to close in 6 weeks and get a loan. So that has an impact. Short sales and foreclosures as a whole are down 40% from this time last year. Last year there were 5000 foreclosures and short sales on the market, now there’s 3000. So this is the medicine the market needs to improve, but it is frustrating if you’re a buyer and people are going to have to put up with it for a while, building permits are up so more stuff is going to be coming on the market as new construction goes up the market gets better and people who will list their homes.

As I mentioned it’s not just here in Massachusetts it’s nationwide kind of a shift that’s taken place. John and Anthony as always we appreciate you coming in, we will see you at the Zip Trips.

Housing Inventory Levels for Massachusetts

The current supply of homes is low due in part to homeowners who are reluctant or unable to put their homes on the market because they’re waiting for the housing market to bounce back. The fact is the housing market is coming back. As we reported in January, home sales in Massachusetts increased 20% in 2012 compared to 2011.

Is now the right time to sell your home or should you wait?

To find out, see which type of homeowner you are:

1 . You’re Waiting for Home Values to Go Up

These are homeowners who won’t sell unless they get the price they paid for the home in addition to the cost of any investments they put into the home and closing costs.

We see it all the time: a homeowner buys a home for a certain price, invests in upgrades to the home, and then won’t sell the home for less than this number because they think they will “lose” out on the money they have put into their home.

For example, we spoke to a homeowner recently who bought their home for $400,000, put in an additional $100,000 worth of upgrades, and wouldn’t sell it unless they could get at least $500,000. They don’t realize you can’t always recoup home improvement costs  dollar-for-dollar in the asking price for the home.

We explained that comparable homes in their neighborhood had sold for $450,000, but they still wouldn’t budge. They believed if they sold the home for $450,000 then they would “lose” $50k. They wanted to wait until values go back up enough to cover the upgrades and closing costs and then buy a new home closer to Boston for $500,000.

What they didn’t understand was when their home value goes up, they can go up for people buying homes as well as selling their homes. If they wait 5 years for the value of their home to go up 10%, they won’t be able to purchase the $500K home in Boston for the same price because the prices have gone up for all homes, not just the one they own. So after waiting 5 years for the value of their own home to rise so they don’t “lose” 50K, they will still end up paying $50K more for the home they want.

Should You Sell?

Yes. You should take advantage of the improving market now and not get so caught up in “losing” money.

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2. You Either Have Too Little Equity in the Home or You’re Upside Down

The first type of homeowner hasn’t built enough equity in the home and may be thinking of selling but not sure if they should. For instance, their home may be worth $300,000 and they owe $280,000, so after the sale of the home they may just break even.

The second type of homeowner is reluctant to sell because they owe more on their mortgage than the home is worth, also known as being “upside down.” As home prices continue to increase, fewer homes will be upside down. Nationwide, the amount of so-called shadow inventory—homes that are at risk of going into foreclosure—has dropped 28% since 2010. In some cases, however, such as with a job loss, even if values increase some homeowners may not be able to afford to stay in the home.

Should You Sell?

For Homeowners with Little Equity: Yes, but only if you have savings for closing costs and cash for a down payment on a new home (if purchasing again). If you don’t have cash for closing and can afford to stay in the home, try to make extra payments to start building equity and wait it out.

For Homeowners Who Are Upside Down:  Yes, if you can either pay the difference in cash or if you qualify and can prove a hardship you may be able to do a short sale.

3. You Won’t Sell Until You See a Home You Want to Buy

This type of homeowner won’t sell their home because they don’t see the home they want to buy yet.  They want to be able to perfectly time putting their home on the market and buying one they want within the same time period. The fact is if you’re waiting to sell your home until you find one that you like, you will not be able to time it perfectly. The market has changed since you bought your home. Now with so few homes on the market, when you do see a home you like, most likely many other people will too. And by the time you put your home on the market, the home you wanted will probably already have sold.

This type of buyer fears not having any where to live once they sell their home. But this should be seen as an opportunity to be better prepared when they do find the home they want. They can sell their home, put most of their furnishings in storage, and live in an apartment or extended stay hotel while shopping for a new home. This way they can take their time to find the perfect home to fit their needs, and in the process save money for a down payment and moving costs.

Should You Sell?

If you’re ready to sell, put your home on the market. For more specific tips on the best way to do this, read 5 Tips on Buying and Selling a Home at the Same Time.

4. There Are Fewer Foreclosures and Short Sales This Year

Another factor contributing to the low inventory of homes is the decrease in foreclosures and short sale homes on the market. This will continue to decline in 2013 and 2014. According to a report this month from the Warren Group, the number of foreclosure petitions in Massachusetts dropped almost 30% in January of this year compared to last year. Petitions, which mark the first step in the foreclosure process, have dropped for three consecutive months. Last year at this time there were 4,837 total foreclosures and short sales on the market. This year there are just 2,843, 41% fewer than there were at this time last year.

Short Sales and Foreclosures On the Market

Low Inventory Affecting Home Sales

Finally, year over year Massachusetts home sales in February were down for the first time since 2011 because of low inventory levels. There were 3,583 homes sold in February of this year, compared to 3,649 last February, a decrease of 1.8%. Low inventory levels have also driven home prices up, which showed an increase of 11% last month compared to February of 2012. Homeowners who want to take advantage of this market should list their homes for sale now when more buyers are actively looking.


Short Sales & Foreclosures: 2010-2013; Source: MLSPIN

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