Stubborn Sellers, Patient Buyers Rule the Market

November 5, 2006 No Comments »

You’d think everyone would be trying to sell their home after the big profits they made in the past few years. Well, they are selling, but no one is buying. Mainly because sellers aren’t willing to part with their beloved homes for less than they bought them for.

There’s also that nagging issue of equity, with so many folks cashing out year after year. Their mortgage balances may now exceed their property values. Not good.

And as the housing markets continues to fester, sellers are becoming increasingly stubborn, and buyers are biding their time, anticipating further price drops, even if mortgage rates remain at attractive levels.

This standstill is sending the housing market into further decay, essentially imploding as neither side is willing to make the first move.

A Housing Standoff…

Homeowners and potential buyers are at a standoff, neither wanting the other to benefit from current market conditions. Sure, sellers are offering enticing deals to bring buyers to their door, but it doesn’t appear to be enough with home prices still at ridiculous highs.

The problem is that sellers thought they had locked in large profits, and simply won’t believe it has all but slipped away. Appraised values are coming in lower than expected, and the lack of recent sales is making comparison data less attractive.

If this trend continues, property values will continue to drop, and homeowners will be left with less and less equity, if any at all. Buyers will be more than happy to continue to ride it out, with no real sense of urgency to purchase a home during such a downtrend.

This downward spiral could lead to a recession if the Fed isn’t careful in determining suitable interest rates, and many homeowners who are currently in negative amortization loans will get hit the hardest.

Not only will they lose all the equity in their home, they will also see enormous monthly mortgage payment hikes once the minimum payment option goes away, and that may prove to be unmanageable.

Of course, this will lead to scores of defaults and foreclosures, which will drive home prices down even further, essentially cutting out any profits made by homeowners in the last few years.

The problem is with such a quick and unmeasured uptrend in the market, one that mirrored the dot-com bust of 2000, there is really nowhere to go but down at this point. And buyers know this. Sellers will continue to live in denial, until perhaps it is too late.

You can’t necessarily blame them. Where are they supposed to go if they sell? And once you factor in transaction costs, most probably don’t even have the required equity to sell.

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