Why is Housing Hurting? - Howard Voyles / HousingMatrix.com

From a distance it is easy to see that the housing market is suffering from a lack of buyers. That is a reasonable conclusion with a jobs market in the dumper, stagnant wages and a slow economy.

Mortgage rates could hardly be better and the available inventory for sale could hardly be larger. So, what is the problem with housing?

MATTER OF DEMAND

It is recognized that the housing market just does not have enough buyers and that puts a real dent in demand. Many factors contribute to the shortage of buyers:

Tighter Underwriting – Mortgage lenders are retching down credit and income qualifications. Excluding many households for access to mortgage money;

Lack of Mobility - A lousy jobs market has placed a virtual halt to relocations and moving up;

Shrinking Equity - The poor housing market has dissolved the equity in many homes. So, even if a homeowner wanted to move they might not get enough cash from their current home to purchase another;

Economic Uncertainty – Those households that do qualify are reluctant to make major purchase decisions in an uncertain economic environment.

Lack of Buyers - Paul Dales, senior US economist at Capital Economics, estimates that there’s and excess supply of 1 million homes. “At the aggregate level, there is certainly no shortage of supply. Instead, home sales are low because demand in being constrained by the weak economy and the inability of many households to qualify for a new mortgage,” says Dales.

MATTER OF SUPPLY

It would appear that the slowdown in home sales and overbuilding has produced a glut of inventory on the market.

Counter Evidence - There is evidence that pockets of the country have a shortage of attractive inventory that is reasonably priced.

Wrong Locations - Many of the homes-for-sale are located in the wrong places, as a result of overbuilding in outlining areas or other unattractive locations.

Short Sales – Short sales account for a large percentage of sales in hard-hit markets that are in less desirable condition or locations.
 
While available at bargain prices buyers are steering clear of short sales because of the time they require and their tendency of falling through at the last minute.

Other homes-for-sale in these markets are overpriced by upside down homeowners trying to avoid the short sales process.

Shrinking Inventories – There is some evidence that homes-for-sale inventories have shrunk over the past year, leaving some pockets of the country with a shortage of attractive inventory at reasonable prices.

Whichever the case, it is going to take a turn in the economy before the housing market regains its equilibrium.