Low Home Equity Rates Keep Listings Down in Many Markets

(MCT)—Home sales around the country are on the rise.

But finding a house to buy could be a big problem. The inventory of homes listed for sale is at the lowest point in more than a decade.

So why aren’t more properties coming on the market?

Housing economist Mark Fleming thinks it’s because many homeowners just owe too much to comfortably sell.

“Almost half of all mortgage loans today are under-equitied — they have less than 20 percent,” Fleming, chief economist for housing and mortgage analyst CoreLogic Inc., said last week.

“These people aren’t supplying their homes to the market because they are underwater or under-equitied.”

Fleming, who spoke to a meeting of the Mortgage Bankers Association in Grapevine, Texas, said it will be years before some homeowners who purchased before the recession have enough of a stake in their house that they can trade up to another property.

Even though home prices are increasing in most U.S. markets, it will take a while before homeowners can net enough from the sale of their current home to have a down payment for another purchase.

“Equity is one of the primary constraints to people buying and moving,” Fleming said.

CoreLogic estimates that 22 percent of mortgage holders nationwide owe more than the value of their properties. And the situation is worse in places in Nevada, Arizona and Florida, where more than a third of homeowners with a loan are upside down, according to CoreLogic.

“Negative equity will cast a shadow over the housing market for years to come,” Fleming said.

Rising home values will eventually cure the situation, he told members of the Washington, D.C.-based mortgage group.

“There is a natural correction going on in the market now,” Fleming said. “Inventory will hopefully come on line because house prices are rising.”

Another reason for the low number of home sales listings is that foreclosures are slowing and investors are purchasing large numbers of the previously distressed houses.

The flood of distressed houses on the market is over in most markets. Fleming said that nationwide foreclosure starts are at about half the volume they were at the worst of the recession.

Lenders also are looking at more alternatives to a home foreclosure, he said.

“Half of them might go to foreclosure, but the other half goes to short sale or modification and other things,” Fleming said. “There is now a big shift toward short sales.”

In these transactions, the lender agrees to the sale of the property at a discount to a new owner, but avoids the foreclosure process. Fleming said the discount on short-sale homes is about a third of what a traditional foreclosure.

Investors — in most cases paying cash — are snapping up thousands of distressed properties. These homes are then being offered for rentals, sometimes to the same owner who lost the house.

Home investors can make an average 9 percent annual return on the properties, Fleming said.

“This is why they are coming in. You can make a lot of money,” he said.

An estimated 3 million to 4 million Americans have shifted from homeownership to rentals during the recession — by choice or forced by foreclosure.

And most of them have wound up in rented single-family homes, said Jay Brinkmann, chief economist with the Mortgage Bankers Association.

“The renter numbers are going up now, and the owner-occupied housing numbers are going down,” Brinkmann said. “There has been a giant increase in the people looking to rent single-family detached houses.

“But they are not in a position to buy.”

Brinkmann said surveys of apartment renters who plan to move show that they usually leave because of high rents, poor management and other factors. But rarely does the renter depart to buy a house.

Less than 10 percent of renters who decided not to renew their lease listed a home purchase as a reason.

“They are not there yet,” Brinkmann said. “We don’t yet see this intent on the part of apartment renters that they have any real interest in buying.”