Why is there low inventory?

There are reports of low inventory of available housing in many areas of the country, including Greenwich. There are several reasons that are contributing to this situation.

• Refinancings: Homeowners who refinanced when mortgage rates were below 4% are less likely to list their homes on the market as interest rates are ticking up. The results of a recent survey by Redfin (National Brokerage) suggests that those benefiting from low refinance rates may rent rather than sell their homes, hoping home prices will rise. Of those surveyed, 42% indicated they currently owned a home, and of those, 39% said they planned to rent it out after they moved. Homeowners in this category typically have good FICO scores, are stable and have above-average income.

• Strong rental market: Fueling the rent-over-sell decision by homeowners are both the number of people having to rent because they don’t qualify for a mortgage and the limited supply of available homes to purchase for those who can qualify for a mortgage.

• Homeowners who bought during the market peak: Many potential buyers cannot purchase another home unless they sell their current home, which has yet to regain some or all of its former market value. Most borrowers cannot afford to purchase another home without using the equity from their existing home for a down payment.

• Other homeowner considerations affecting list or rent options. Homeowners may view mortgages as cheap money and be resistant to paying off a mortgage. They are looking for larger returns on the use of their money. Some homeowners are concerned about the risks of renting (e.g., damages and maintaining a rental property). Some homeowners able to own multiple homes are concerned about the possible effects of an economic adjustment. Other homeowners are concerned about the fluctuations in the rental market.

Meanwhile, older homeowners, having accrued a significant amount of equity, are downsizing. They no longer wish to maintain a home that is more than they need. The cost of utilities, especially oil and electric, combined with harsh weather has made it difficult for these homeowners. So they are choosing to sell and purchase smaller, easier-to-maintain homes.

Prospective buyers and homeowners are focusing on maintaining or improving their credit ratings. The economic downturn had people paying down credit cards over their mortgages, given unemployment and falling home values. People were worried about maintaining their cash flow and needed the liquidity that credit cards offered. Even car loans were put ahead of mortgages.

This occurrence was most pronounced in areas where the real estate market suffered the most and unemployment was the highest.

With some people viewing their homes as investments, they felt paying mortgages was throwing more money away. These homes have gone into foreclosure and the banks have taken time in selling them. What these “investment people” failed to adequately consider was the importance of maintaining a good credit rating.

According to TransUnion, this trend flipped in September 2013. Paying mortgages has once again become a priority over credit card bills, and this will positively impact the real estate market.

This economic downturn has resulted in buyers taking the emotion out of purchasing a home. However, a home should be a place of comfort and enjoyment.

 

Mary Ann Clark is a Realtor with Coldwell Banker at 177 West Putnam Avenue in Greenwich. Questions or comments may be emailed to [email protected]

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