Markets for inventory impacting sales

Just a few years ago, there was a glut of homes on the market across the country. In June of this year, sales of existing homes decreased 5.4% compared to May, according to the National Association of Realtors. This statistic shows that although the real estate market is improving, it still has some instabilities in some areas. With less inventory, buyers have fewer properties from which to choose and this is adversely impacting home sales. In Greenwich, home inventory in Riverside and Old Greenwich is down, as are properties for $1 million or less. Across the nation, inventories of single-family homes decreased 3% in June when compared to May and 24% from 2011.

 

This is the largest annual decrease in approximately 30 years. Housing demand has increased this year as the economy has improved, interest rates remain low and homes remain relatively affordable in most markets.

Unemployment remains a concern and is putting downward pressure on some markets. In Connecticut, the preliminary June estimates show an 8.1% unemployment rate, which has ticked up slightly from May despite the private sector adding approximately 102,000 jobs, according to the Connecticut Department of Labor.

The decrease in home inventory is also attributed to banks being slow in processing distressed properties. As earlier reported, investors are increasingly picking up properties, renting them and waiting until prices rise to realize a profit upon sale. Another reason why there is a decrease in inventory is because many sellers owe more than their homes are currently worth and do not wish to realize the loss by selling. Meanwhile, other homeowners with equity in their properties are having problems accepting their homes are worth less than the peak of the market, and are keeping them.

On the flip side of the coin, a decrease in inventory is helping to stabilize the real estate market. In Greenwich, we are still seeing multiple bids on appropriately priced properties. The seller’s selection of a buyer is coming down to terms and conditions of sale. Buyers are still being cautious in not overpaying for a property.

Financial securities tied to rents

Financial firms are trying to structure deals that are backed by the rental income of residents living in previously distressed homes. As examples, Colony American Homes, an investment firm, and Waypoint Real Estate are purchasing distressed properties and renting them. These firms are backed by investment banks and credit-rating firms. They intend to bundle thousands of the rental payments into securities and selling them to other investors.

Colony and Waypoint are trying to create these packages and sell them to external investors for capital they can use to offer more real estate investments or bundles for securities. These securities are expected to be ready in six to 12 months. There are risks associated with these securities, like the duration and timely payment of rents. It is always best to weigh the risks versus the returns and this is no exception.

 

Mary Ann Clark is a Realtor with Coldwell Banker at 177 West Putnam Avenue. Questions or comments may be e-mailed to [email protected] or reach her directly at 203-249-2244.

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