Low Equity Holds Back Housing Inventory and Sales

The Intero Insider
By Gino Blefari, President & CEO, Intero Real Estate Services, Inc.

22 million homeowners can’t sell.

picture of a key to a houseThat’s what’s really holding back inventory and therefore home sales in many markets right now. While home sales have rebound at a healthy pace in many areas, lack of inventory holds a wrench in the gears.

Zillow this past week reported that 13 million homeowners were still underwater in Q1, and more than 9 million more lacked enough equity to move. That’s 25.4% of all homeowners with a mortgage. This is a large part of the short inventory story.

These homeowners are essentially stuck. For now.

The total number of homeowners with less than 20% equity increases the negative equity rate to 43.6%, or 22.3 million homeowners, Zillow said. Zillow’s factoring in that a seller would need at least 20% to cover selling and closing fees, as well as make a down payment on a new home.

Of the 30 largest metro areas in Zillow’s report, Las Vegas (71.5%) had the highest percent of homeowners with less than 20% equity. Atlanta (64.1%) and Riverside, Calif. (59.7%) were second and third.

What’s going to bring back equity?

Time and demand.

But it needs to happen within delicate boundaries. If inventory continues to lag by larger margins, demand will price out too many buyers – especially first-time buyers.

As we’ve noted before, this is the only notable obstacle in the recovery right now. As it stands, housing is being called the strongest sector of the economy. Home prices are making healthy gains and sales are either chugging along in some markets or exploding off the charts in others like we’re seeing in Silicon Valley.

What needs to happen to remove this obstacle, however, is a combination of things. Values will need to continue to climb, but more of the severe underwater cases will also need opportunities to either refinance or short sell out of their situations.

It may seem like a steep climb, but we’re already on the hill looking up. Soon we’ll be looking back. Most expect more improvement on the horizon.

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