Several home owners say they want to sell their home but they can’t because they still owe too much on their mortgage.
While home prices have seen a slight uptick in many areas in recent months, home owners are still waiting to see a bigger jump to take them from underwater to above water on their mortgages.
Underwater homeowners’ reluctance to sell is causing inventories of for-sale homes to shrink at a time when home buyer demand has picked up considerably, USA Today reports.
“When you get [houses priced] under $125,000, it’s like a frenzy,” Linda Schlitt-Gonzalez, owner-broker of a Coldwell Banker franchise in Vero Beach, Fla., told USA Today. “It’s not unusual to have five offers.”
Inventories of homes for-sale tend to be the lowest in housing markets that have the most underwater home owners, according to CoreLogic.
Forty-five percent of home owners with mortgages have less than 20 percent of equity in their homes, according to data provider CoreLogic. In general, home sellers need at least 20 percent in “equity to generate enough cash to turn around and buy a similar or larger home using a conventional loan,” USA Today reports.
“We thought, if demand was there, there would always be sellers. But instead the supply is sitting on the sidelines,” Stan Humphries, Zillow’s chief economist, told USA Today. “The inventory phenomenon … will make for a more volatile housing recovery than what we initially expected.”
Some major markets with the least amount of supply in homes for-sale — less than a three-month supply as of May — are Seattle, Phoenix, Denver, Sacramento, the San Francisco Bay Area, Washington, D.C., and portions of Southern California, according to the 18 major markets Redfin tracks.
“In order for us to see a more stable housing recovery, the basic rule of economics requires prices to change enough to bring a new wave of sellers on the market,” says Michael Orr, real estate expert at Arizona State University.