The current inventory of housing in the East Bay, CA is at least 20% less than last year. Therefore, creating a frency of qualified buyers which is resulting in shorter sale
times and multiple offers. The economic laws of supply and demand tell
us that this competition should push prices up but it's not happening.
The other result is that, with so little purchase opportunities
available, demand for rental housing has increased and rent is at an
all-time high.
So what's going on? It appears to be a conflict between several varied market forces.
First - Buyers fear more price reductions to come
- Market watcher Core Logic reports that there are currently 11.1
million borrowers underwater nationwide. Lender Processing Service (LPS)
reports that 5.5 million borrowers are 30 days or more delinquent, over
2 million of which are already in the foreclosure process. And while
statistically foreclosure rates are actually down, 56,258 new
foreclosures were started in California in the 1st three months of 2012.
Many call this the "shadow inventory": properties in trouble but not on
the market for sale. With the recent National Mortgage Settlement
resolving lender fears of possible blocks to foreclosure, most market
watchers expect an increase in the 2nd quarter. If so, prospective
buyers fear that increased foreclosure activity may push prices down
further.
Second - Prospective Sellers hope for Loan Modifications
- Despite the reality that success in obtaining a loan modification
remains less than 10% and mods with principal reduction are even less,
upside-down owners continue to hope that relief may be coming to enable
them to keep their homes. The National Mortgage Settlement will
eventually produce up to $25 billion in principal reductions, although
it is still unclear who will qualify for these. The Settlement only
applies to Wells Fargo, BofA, Chase, Ally, and Citi but does not apply
to FNMA and Freddie Mac owned loans. Those two GSE's own 60% of the
upside-down loans yet they refuse to participate in principal reduction.
Third - Lenders are tightening lending standards
- According to a recent report in DS News, over 30% of residential
mortgage lenders report an increase in demand. In response, lenders are
actually tightening standards for residential mortgage loans. While the
availability of loans remains better than it was immediately after the
onset of the recession, prospective home owners are finding it more
difficult to obtain purchase funds. This prevents them from competing
with the large numbers of investors and others purchasing properties for
all cash.
Fourth - REO holders are bypassing the real estate profession - Increasingly,
lenders are offering to sell their REO (real estate owned) properties
in bulk to investor groups at a discount. For lenders, this removes
large numbers of properties from their non-performing inventory at a
lower cost; and for investors, this provides a very significant
opportunity to buy already devalued property at even further reductions.
However, these properties never come on the market for Realtors to sell
or prospective buyers to buy. This trend appears to be increasing.
Taken together, these market forces are likely to keep market inventory down for the foreseeable future.
