Growing number of US homebuyers face shortage of properties for sale
The US market is rebounding, but many homeowners are still in negative equity from the 2006 collapse and are holding out for a better deal
Beth Heinen Bell and her husband, Christian, are sick of renting. They want more space. They'd like to host friends for dinner. And now, having seen the real estate market start to rebound, they want to turn housing payments into long-term equity.
So after a decade as someone else's tenant, the Bells, like a rising number of Americans, are finally ready to buy a home. Yet they're running into an obstacle that's keeping the national housing recovery in check: there aren't enough homes for sale.
The housing shortage around Grand Rapids, a city known for its furniture industry and sleek downtown hospital complex, is fairly typical of what the country as a whole is facing this spring.
Some markets on the east and west coasts have grown red-hot. A handful of other cities remain depressed nearly four years after the recession ended. But many more are like Grand Rapids, a city of roughly 1 million that is recovering slowly but steadily.
Like so many others, this Midwestern city 240 kilometres west of Detroit never experienced either the buyer frenzy or the price collapse that marked the boom and bust. Yet it, too, was affected. Prices fell. Homeowners lost equity. And now, many remain unable or unwilling to sell.
The shortage of homes is occurring just as ordinary Americans want to buy again. More of them feel confident about their jobs and retirement accounts. Mortgage rates are near historic lows. And prices are rising again, easing fears that new buyers might lose their investment.
"The last four years have been rough," says Christian, a 31-year-old Presbyterian minister. "But housing prices are starting to come back up."
A tight supply isn't the only factor slowing what is otherwise shaping up as the strongest spring buying season since the housing boom ended nearly seven years ago. Some Americans have grown to prefer renting. Others who would like to buy lack strong enough credit or a large enough down payment to meet the stricter new bank standards.
Part of the reason for the supply problem is that many people who lost so much equity in their homes after the housing market collapsed in 2006 are still unable or unwilling to sell. Prices have started to rise, but not enough to restore what many lost. Some still owe more on their mortgage than their home is worth.
Even many who have enough equity to sell want to wait for prices to rise further.
"Every buyer wants to buy at the bottom, but no seller wants to sell at the bottom," says Stan Humphries, chief economist at real estate information site Zillow. "They've got this hypothetical price that they think the house is worth at the peak, and they don't want to sell below that."
Others don't want to leave. During the depths of the recession, they chose to renovate their house instead of finding a new one. After paying for renovations, they now feel more invested and comfortable in their home.
That leaves many first-time buyers like the Bells, a group that makes up about one-third of buyers, competing for a small number of homes.
Just a few years ago, the housing market was facing an oversupply of homes, one that eventually led prices to collapse. The bubble - and the bust - were worst in areas like Arizona, south Florida, southern California and Las Vegas where developments kept popping up on vast tracts surrounding cities.
Banks offered absurdly low teaser rates to new homeowners who often bought with no money down. When their loan rates climbed after the introductory period, many were left unable to pay. Banks foreclosed, home values fell and homes were sold for a fraction of their cost.
In the past two years, hedge funds, banks and other investors entered those markets and helped soak up the supply and lift prices. Now, the country is facing a shortage of homes for sale.
In a few especially hot areas, such as around San Francisco and Seattle, some of the same kinds of bidding wars that inflated the housing bubble are back. Crowds of buyers are creating traffic jams outside open houses.
"People have been wanting to move for a very long time," says Glenn Kelman, CEO of online real estate broker Redfin. "Somebody rang a bell and said the boom is back, and nobody wants to be late to the party."
The market in Grand Rapids is more subdued but still driven by a supply shortage.
Nationally, there were just 1.93 million homes on the market in March, down 16.8 per cent from a year before, according to the National Association of Realtors. In a healthy market, there's roughly a six month supply. This March, that number had fallen to 4.7 months, a situation stacked against buyers.
As more would-be buyers bid on fewer properties, prices are being forced up at a rate that might be overstating the market's health. Prices in the top 20 cities have risen 9.3 per cent in the past year, according to the S&P/Case-Shiller home price index. That's the fastest year-on-year increase since May 2006.
The tight supply is a key reason that Susan Wachter, a real estate and finance professor at the University of Pennsylvania's Wharton School, estimates a full recovery is still three to five years away. Even so, Wachter calls this "a breakout spring". The public now recognises, she says, that the housing recovery will last.
Diane Griffin, CEO of Griffin Properties, which has been helping the Bells search for a home, says a major problem is that many potential sellers aren't being realistic about price. She often has to explain that their property isn't worth what it was during the boom.
"This is the hardest conversation I have with people," she said.
Prices in Grand Rapids bottomed in October 2011, after falling 24.5 per cent during the previous 51/2 years. They have since risen 7.6 per cent, to a median of US$114,400, giving many buyers enough confidence to enter the market. Yet, home values remain 17.2 per cent below the peak, according to Zillow.