By Bruce Cathcart
Everyone has heard that it is a seller’s market here today in the Coachella Valley, but what exactly does that mean? Simply put, a seller’s market is a market in which there are more buyers than sellers. In economic terms this means that the demand for houses exceeds the supply of houses, which results in higher prices. This is certainly true right now for real estate in the Coachella Valley. The number of homes currently for sale (listings) is less than half of what we consider normal and statistically many home sale prices are now 30% higher than they were just 6 months ago! So why are so few homes for sale right now? It is due to a combination of reasons.
One reason is that many homeowners still owe more on their mortgages than their homes are worth. While we have recently seen home prices rise dramatically over the past year they still have a long way to go before they equal their values from 2005-2006. The math can be misleading as a 50% loss in value in 2006 does not equal a 50% gain in 2013. For example, if a home was worth $300,000.00 in 2006 and lost 50% value it would be worth $150,000.00. If that same home gained back 50% of its value over the last 7 years it would only be worth $225,000.00. So despite all the recent feel good news and statistics reporting positive gains in home prices, many homeowners are still a long ways from being able to sell their home and just break even.
Another reason why the inventory of homes for sale is so low is that the lenders have been doing extraordinary things to allow homeowners currently in default on their payments to remain in their homes. Large numbers of foreclosures seem like ancient history. Instead, lenders are doing things that in the past we could not have imagined… like forgiving principal debt, forgiving past due payments and restructuring loans by amortizing payments on a portion of their mortgage over 40 years and creating second loans with no payments (or accrued interest) for 40 years, and even accepting deeds in lieu of foreclosure (homeowners simply giving their homes back to the lender) and then allowing them to remain in their homes as renters! These and other efforts on the part of the lenders have successfully managed to keep the “shadow inventory” from becoming actual inventory!
Even those homeowners with equity in their homes are reluctant to sell their homes in the current market for two obvious reasons. With prices going up so fast, if they do not have to sell their home, most homeowners are choosing to wait a little longer in hopes of making even more money on their sale. And then of course there is the dilemma of the homeowner that would like to sell their current home and buy another home, either bigger and better or perhaps even a smaller retirement home. Either way, in a seller’s market they can easily sell their current home only to get stuck not being able to buy their next home. Many of these homeowners simply choose not to take this risk.
And finally, where are the new homes being built to help meet this demand for housing? There are a few builders out there “getting back in the game” as housing starts are up nationwide. But the reality of this situation is that costs to build are up and prices have still not recovered to the point to where it makes economic sense to build new homes on the scale that could have a significant influence on the current seller’s market.
The road to recovery for the housing market is a long one and going through a seller’s market is just part of the cycle.
This week’s real estate tip: If you are a homeowner considering selling your home and then repurchasing another home in the current seller’s market; before you actually list your home for sale you will need to “shop” the market for your next home. Your real estate agent can help you with this process as you will want to make sure that you do not sell your current home only to become “homeless”.
Bruce Cathcart is the Broker/Co-Owner of La Quinta Palms Realty, “The Friendly Professionals” and can be reached by email at email@example.com or visit his website at www.laquintapalmsrealty.com.