It's a good time to buy, but is it a good time to sell?
A new study finds that 80% think it's a good time to buy a home, but only 7.6% think it's a good time to sell — at least at current prices.
One challenge facing prospective homebuyers is the difficulty of finding a house in a good neighborhood in good condition.
Prices continue to decline, but so does the number of homes for sale.
New research gives us one reason why: Buyers may think it's a good time to buy, but sellers don't think it's a good time to sell.
A study for the Mortgage Bankers Association's Research Institute for Housing America found that nearly 80% of Americans think it's a good time to buy, but only 7.6% think it's a good time to sell.
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The feelings of homebuyers are the same as in previous recessions, but the sentiments of sellers are different this time, Syracuse University professor Gary V. Engelhardt wrote in a special report titled "The Great Recession and Attitudes Toward Home-Buying." He writes:
What distinguishes the current recession is the dramatic decline in home-selling sentiment. From 1992 through 2005, positive home-selling sentiment fluctuated between 40% and 60%. Since 2005, sentiment has dropped precipitously, to around 7% currently, even while homebuying sentiment remains high.
Nearly two-thirds of those who expressed negative selling sentiment listed "difficulty of finding a buyer" as the reason. Engelhardt suggested that what they mean is the difficulty of finding a buyer at the price they want.
Mike Litzner, who owns Century 21 American Homes in Long Island, N.Y., says real-estate agents have to educate sellers on what price their home is really likely to fetch now. "If sellers really want to sell, they adjust their expectations to the changed realities," he told syndicated columnist Kenneth R. Harney.
If the sellers won't face reality, the agents sometimes decline the listing rather than waste time marketing a home that won't sell at the desired price.
Some agents are writing price-reduction clauses into contracts with sellers, which authorize automatic price reductions if no action occurs in the first few weeks.
Are sellers refusing to face reality? Or are they smart to keep their homes off the market now?
Here are some real numbers from the Cleveland suburbs:
We bought our first starter house in 2000 for $105,000.
In 2007, a similiar home in our neighborhood sold for $140,000.
We sold our house for $120,000 in 2008, as the market was crashing...
In 2009-2010 prices continued to drop another 25% or more.
For instance, a couple months ago a larger home 2 doors down sold for $72,000.
Homes 1-3 streets over are selling for $50K - $60K due to the glut of foreclosures...
Therefore, in that neighborhood, anyone who bought a home from 2004 - 2007 financing it at 80% - 100% is stuck in a home that is worth less than they owe. The only way out is to pay down the mortgage, rent, or walk-away.
After living in a relative's house for over a year we were able to wait until the market bottomed-out enough for us to find a great deal on a much larger house out in the country. On the day we signed the mortgage for our current home, the bank appraised our house for 20% more than we paid and the insurance replacement value was set at 30% more. Even if the prices continue to drop we feel this is our home and plan to stay until our young children are grown. They love it out here in the country and are thriving.
Lenders should consider (or be mandated) to convert existing defaulting mortgages to a "Shared Equity Mortgage" where the current mortgage balance is reduced by 50% and the Lender is given a 50% equity ownership in the property. The current Homeowner will make payments on the new mortgage amount. On the 2nd anniversary of the new mortgage and every anniversary date thereafter, the lender will transfer 5% of their equity ownership to the homeowner and add the 5% equity value (dollar amount) to the homeowners mortgage balance. This 5% transfer process will continue until the homeowner again owns 100% of the property.
Should the property be sold or transferred prior to the homeowners’ 100% ownership, the Lender would share in the Gain or Loss of the resulting sale based on the Equity Ownership percentages.
This will allow the homeowners to continue their home ownership and not be forced into foreclosure. The owners will make payments on the new mortgage balances, maintain the property, pay property taxes, and insurance premiums. The Lenders will benefit by not acquiring unwanted properties through foreclosure which they will ultimately sell at 50% to 60% of prior market value. Should the properties be sold prior to the homeowner obtaining 100% equity, the Lender could actually make a profit as property values rise (values will rise over time).
They are smart to wait. There is still too much inventory but this study shows a pent up demand that will explode into the next bubble as soon as we are sure we can feel the bottom. Sellers should improve their property and prepare for a seller<s market again soon. Here we go again.
This was actually a good market to upgrade. Our growing family had used-up every corner of our starter home plus we wanted to relocate to the country to a better job offer and to a better school system. We had bought our first 3BR 1400SF starter home FSBO from a friend my wife worked with. She knocked-off 20% from appraisal because she wanted to get remarried and did not want to hassle with fixing or cleaning or paying 6% to a realtor. Getting a great deal up-front meant that we always had wiggle-room when it came time to sell. The best deals are always made up-front...
When we were ready to accept the job offer & sell the market had dropped 15%-20% already. Although we did not recoup any of the money we spent on improvements, we were able to sell without dipping into or savings. Our older (& wiser) realtor had sold homes in the 1980's when the economy around here was nearly as bad. She said that the market would likely continue to decline and then take a while to recover. Therefore we heeded her advice and accepted our first (low) offer. Wasn't sure then, but it turned-out to be the best advice we had ever received. The next house in our neighborhood to sell sold 10 months later for 25% less. I know some criticize realtors, but finding her was the best move we ever made. Another 25% loss would have turned us into landlords...
We stayed at a relative's (empty) house while the market dropped. This also helped us to save-up a down payment for our next house and to thoroughly analyze the market of larger homes out in the country. After watching $350K houses fall into the $250K price-range, we noticed a new listing that was priced to sell. We paid $230K for a 3000SF house on 2 acres that the bank has appraised at $280K. (They NEVER appraise high... If you know real estate, you understand the built-in equity from this deal... For instnace, our replacement (insurance) value is $330K. A family down the street just built a new (smaller) house for $300K since they already had purchased the land...)
At this price we can make our mortgage payment on one income. We also own a home business that can be upscaled to replace either income. Had the market not crashed, we would not be living in such a great neighborhood. $230K did not go very far in 2006... By also getting a good deal on this house, 20% below bank appraisal, we can still sell at any time and get out from under our mortgage. Again, the best deals are always made up-front.
I think that if banks are to allow people to owe less the banks should own a percentage of any future profits as a result of that home being sold for more down the line. Imagine if you are the bank and your nephew decides to buy a home from you for $150,000 but he only has $4,500 and wants to finance the rest. He really likes the home and thinks it will go up in value over time as well. If the home goes up in value he will only pay you what he owes you based on the terms of the loan. However, the market falls out and the home becomes worth only $50,000 and he says "hey uncle, the home is only worth $50,000 now so how about that be my new balance with you and if something crazy happens and the home ends up being worth $500,000 I will sell it and reap a $450,000 windfall and won't even repay you for the $100,000 in lost value plus interest that you wrote off okay?!"
That does not make sense to me. If 2/3rds of the value is ignored for the purposes of the mortgage then the bank should own 2/3rds of any future profits as a result of selling that home, even if that amount is far greater than the amount of the mortgage they chose to ignore plus interest. It is a win-win in that the person gets to stay in the house and not take the loss and eventually gets to make a profit while the bank does not lose out on that principle amount and can make a profit when home prices improve. If the person decides to walk away after values come up but not quite to the initial mortgage amount the bank loses less than they would have. If the person pays off the mortgage they owe nothing but still only own 1/3rd of the value of the house and will only get 1/3rd of the profits when they sell. If they want to buy the rest of the house at a later date then they get a mortgage to cover any remaining balance on their mortgage plus 2/3rds of whatever the current value is (even if that amount is more than the original mortgage).
This is news? Someone RESEARCHED this? Lemme guess it was a 4.2 million dollar grant to study smart people.
Sounds like the realtors are still having problems putting food on their tables. Sucks to be them. Adjust to the new reality as they like to say.
Q-Tip: you forgot to mention lack of mobility in your list of reasons to not want to be a homeowner but I think you misunderstand the sports metaphor.
A football player on the sidelines wants to get into the game. Some people do not like to get tackled and therefore do not want into the game and you will not find those people on the sidelines, as they will be in the stands or somewhere else entirely. Granted there may be some football player on the sidelines that does not like to play football and hopes to never get in the game and is only doing it because their dad wants it or because they are trying to impress some girl but the metaphor implies that if you are on the sideline you want in the game.
By definition you are not on the sideline as you have no interest in getting in the game and when I referred to people on the sideline I was not referring to non-home owners that never wish to own a home, I was referring to non-home owners that want to own a home. There are many reasons that someone might not want to own a home and the reasons you listed are excellent.
About Teresa Mears
Teresa Mears is a veteran journalist who has been interested in houses since her father took her to tax auctions to carry the cash at age 10. A former editor of The Miami Herald's Home & Design section, she lives in South Florida where, in addition to writing about real estate, she publishes Miami on the Cheap to help her neighbors adjust to the loss of 60% of their property value.