The True Shadow Inventory - Underwater Home Owners
The housing news lately has been very positive. Rates are at record lows, prices are rising in Placer County and homes are flying off the shelf.
We have very little inventory to sell, and it appears we won't have much for quite awhile, so prices will probably continue upward.
Even with all that being the case, I think it is important that we still keep in perspective how deep the hole still is.
Yahoo News has reported with the support of Zillow stats, that:
- Of U.S. homeowners with a mortgage, about one-third are underwater.
- While some of these homeowners are in "distress", 90% of the underwater homeowners are on time with their mortgage payments and seemingly staying put.
- 41% of homeowners in Placer County are underwater, per Zillow's Negative Equity Tool http://www.zillow.com/visuals/negative-equity/.
Even with appreciable increases in prices, due to the lack of inventory, there are large groups of underwater home owners that will be ready to sell at each subsequently higher price point, because they haven't been able to at lower prices.
I know numerous of these people myself.
They have wanted to move for all the same reasons that people always move: new jobs, new kids, marriage, increased pay, etc..
But, they have been stuck in a home that does not fit their needs, because they owe more than their home is worth.
As soon as the market climbs back out of the hole, or they can save the money to pay the difference, they plan on selling and moving.
Until then, they just wait in the background as a huge hedge against further appreciation in the market.
While banks undoubtedly own some real estate they don't currently have listed, and there are quite a few homes in the foreclosure process that may eventually become listings, it is this much larger group of underwater home owners that is the true shadow inventory.
So long as such a large group of people remain stuck in their homes waiting for an exit, there will be downward pressure on the market and a drag on further appreciation.