Why Aren't More Potential Sellers, Selling?

It is a market dominated by the sellers who can and are selling. So, why aren't more potential sellers selling? This article answers that question. 

NEW YORK – March 31, 2015 – Existing-home sales are up nearly 5 percent from last year, but sales would be much higher if it wasn't for the negative equity overhang, economists say.

The National Association of Realtors® recently reported that existing-home sales increased 4.7 percent in February compared to a year ago.

But with an improving labor market, home sales should be even higher, Mark Fleming, chief economist at First American Financial Corp., told The New York Times, regardless of the fact that home prices are higher too.

"Rising prices only crimp affordability for the first-time buyer who doesn't yet own the asset," Fleming says. "But the vast majority of home sales are to existing homeowners. And for existing homeowners, what changes affordability is their own income and the price of money."

Currently, though, too many homeowners still lack sufficient equity in their homes to sell, Fleming notes. Owners with home equity below 20 percent are less likely to sell because if they can't cover the costs of the transaction.
A significant number of current homeowners can't afford to move up if they're relying on profit from an existing home for the downpayment. About 35 percent of owners nationwide are either in a negative equity position or have equity below 20 percent, according to some industry estimates.

However, the equity picture has shown improvement recently. CoreLogic reported earlier this month that 89 percent – or about 44.5 million – of all U.S. properties with a mortgage had at least some equity by the end of the fourth quarter of 2014.

What's more, if home prices rise by an additional 5 percent, about 1 million more homeowners in negative equity stand to inch back into the black. However, much of the equity is concentrated at the high-end of the housing market (94 percent of homes valued at more than $200,000 have equity compared to 84 percent of homes valued less than $200,000).

Also, many homeowners remain "under-equitied" with less than 20 percent equity in their homes. Nearly 50 million properties – one in five (20 percent) – are considered "under-equitied" in the U.S., and about 1.4 million of those properties have less than 5 percent equity, considered "near-negative equity."

According to CoreLogic's report, the states with the largest number of negative equity homeowners, as of the fourth quarter of 2014, are: Nevada (24 percent); Florida (23.3 percent); Arizona (18.7 percent); Illinois (16.2 percent), and Rhode Island (15.8 percent).

Source: "Negative Equity a Drag on Home Sales," The New York Times (March 27, 2015) and "89% of U.S. Homes Ended 2014 With Equity," REALTOR® Magazine Daily News (March 18, 2015)

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