Home Sellers Still See Conditions as Unfavorable. Perspective on Shadow Inventory

by devteam February 5th, 2010 | Share

A consumer survey conducted by Thomas Reuters and thernUniversity of Michigan indicates that it is sellers who are holding the housingrnmarket at low levels.

In survey results released today, approximately 75rnpercent of homeowners who participated in the survey viewed current home buyingrnconditions as favorable because of attractive home prices and low interestrnrates. However, nine out of ten of those home owners viewed the conditions forrnthe sale of their own home as unfavorable, not because of lack of buyers, butrnbecause of price declines.

The survey authors viewed these responses as predicting arnlong-term drag on the housing market for both economic and psychological reasons.rnThere is, the report said, a significant barrier to purchasing a new home ifrnthe potential buyer's current home is “under water,” that is more isrnowed on the house than the house can be expected to sell for. Even homeownersrnwith equity will be constrained in providing a down payment for a new propertyrnif their equity has fallen below 20 percent.

The loss of value of the home also presents a psychological barrierrnbecause people are reluctant to sell houses at a value lower than it had in thernpast. The report likened it to stock market investors who sell their winnersrnbut hold on to the losers.

The authors said that one implication of their surveyrnresults is that “forecast models based on the past dominance of buyingrnwill overestimate future trends unless selling conditions are alsornincorporated.”

Homeowners do see some improvement in the market, however. 46 percent of survey respondents felt that their home had lost value in thernlast year, but in the survey conducted during the fourth quarter of 2009, 53rnpercent of respondents reported a decline and one year ago the figure was 60rnpercent. 14 percent felt that their home's value had increased during the pastrnyear.

The number of homeowners who expected the home to gain valuernover both the short and long term also increased. 24 percent expected that thernvalue would go up over the next year while 15 percent, the lowest responsernsince early 2007, expected a further decline. This is a significant improvementrnover the attitude one year ago when 26 percent of respondents expected a lossrnin value at a mean average of -1.9 percent. Respondents to the most recentrnsurvey, however, aren't looking for much of an increase in values; the averagernexpected increase was 0.0 percent.

MND's Adam Quinones adds…

“There has been much debate as to the amount of shadow inventory that has yet to hit the housing market. Many analysts speculate that a continued rise in prime mortgage delinquencies and high non-prime loan foreclosure rates will add to an already inflated level of housing inventory and pressure home prices lower. I have a slightly different perspective. To reduce the cost of maintaining the condition of foreclosed properties, banks have delayed the liquidation process and allowed delinquent borrowers to remain in their homes. In addition to that, by delaying the liquidation of foreclosed properties, banks have avoided large asset value write-downs .  This will not last forever though.  Once the housing market starts to pick up recovery momentum, banks will begin to slowly liquidate their inventory of foreclosed properties. Hopefully they will do so in a manner that does not disrupt local supply/demand.”

Over the next five years 59 percent of respondents expect tornsee a rise in the value of their houses albeit a small one.  The mean increase was estimated at 2.7rnpercent. 7 percent expected that their house would decline over the next fivernyear. Last quarter 63 percent were looking for an improvement over 5 years andrn9 percent expected a decline.  

Here is a table summarizing the survey results:

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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