Is Supply vs. Demand Hurting San Diego Housing?

Why you may be rejected for a Home Loan
October 17, 2011
Mortgage applications increase 4.9%
October 31, 2011
Show all

Is Supply vs. Demand Hurting San Diego Housing?

Is low demand or poor supply the biggest cause for concern in the current housing market?

Of course, one of the biggest problems facing the U.S. housing market right now is that there aren’t enough buyers for homes. Mortgage rates are hovering near their lowest levels in most Americans’ adult lifetimes, but demand is anemic.

But we have written about a surprising trend: housing inventories have shrunk over the past year, leaving some pockets of the country with a shortage of attractive inventory—or with homes that are reasonably priced. Real-estate industry executives say that a lack of quality homes for sale is hurting sales because even though demand remains depressed, those buyers who are ready to purchase a home just don’t like what they see.

In a research note on Monday, Paul Dales, senior U.S. economist at Capital Economics, challenged that view. Looking back over the past 30 years, he estimates that there’s an excess supply of 1 million homes. “At the aggregate level, there is certainly no shortage of supply. Instead, home sales are low because demand is being constrained by the weak economy and the inability of many households to qualify for a new mortgage,” writes Mr. Dales.

Meanwhile, there’s an even greater “shadow” supply of potential foreclosures and other distressed homes, a figure in the millions, which will keep inventories bloated for years. Real-estate agents also see firsthand this shadow inventory: many of them may represent “sidelined sellers” that have pulled their homes from the market and are likely to list their homes once it’s clear home prices have stopped falling.

So economists rightly note that housing markets are historically over-supplied, and yet real-estate agents also are reporting that in many pockets of the country, there aren’t enough homes for sale. What’s going on here?

The easiest explanation is that there may be too many homes for sale in the wrong places. During the housing boom, many homes were built in far-flung locales that aren’t as attractive today.

Second, many homes listed for sale may be over-priced, exacerbating the challenge of declining inventory. Some sellers may be listing their homes at wildly unrealistic prices because they don’t want to have to sell their home in a short sale, where the bank agrees to a sale for less than the mortgage debt owed.

Third, short sales make up a large chunk of sales in many hard-hit markets, and some home buyers have steered clear of short sales because those deals can take months to complete. They’re also liable to fall through at the last second.

These factors help explain some of the dissonance: a poor selection of homes, with some that are overpriced and others that have an unattractive sales process. The bottom line is that the housing market remains far from healthy, and until demand revs up, it’s hard to see how this dynamic improves.

 

Source  http://blogs.wsj.com/developments/2011/10/18/supply-vs-demand-why-is-housing-hurting/

Leave a Reply

Your email address will not be published. Required fields are marked *