Last week, U.S. existing-home sales reported its fourth decrease in the past five months, hitting a 12-month low in August. The explanation has now become to sound like a broken record: low housing inventory is to blame. This inventory drought is causing bidding wars in hot real estate markets around the country, pushing home prices up, and making it near impossible for many first-time homebuyers to find homes. Our industry has been waiting for a decade for Millennials to come off the sidelines to join homeownership, but now that many of them are ready and willing, they have no homes to buy.
At first glance, this should have been the best time for homeowners to sell their homes. After all, it’s been dubbed the “strongest seller's market ever”. In ValueInsured’s latest Modern Homebuyer Survey, 83% of all homeowners in America believe “now is a good time to sell”. So the 29.6 trillion-dollar question is: why aren’t they selling?
The simple answer is every homeowner needs an exit plan. It might be a good move for a homeowner to sell now, but where should they go next?
Digging deeper into ValueInsured’s summer survey, the following homeowner sentiments are revealed:
- 3 in 4 homeowners (76%) believe the Fed will raise rates soon.
- 73% went as far as saying the era of low rates and affordable mortgages is coming to an end.
- 58% expressed pessimism that they expect a housing “bubble” and price correction in their area within the next two years.
- 70% of all homebuyers who express interest in selling and buying another home say they are concerned about timing the market, and worried about “buying high”.
The concern to “time the market” is particularly telling, as 79% of all homeowners believe prices could go up higher by the end of 2017 and the beginning of 2018 before they come down. This could be an important clue that explains why so many of them are sitting tight and not selling, or not selling yet, as some may believe home prices still have room to grow in their area in the near-term, while others do not want to have to buy high after they sell their own home. 63% of all homeowners believe 6 months from now would be a better time to sell a home than it is today. 64% of homeowners also believe a year from today would be a better time to buy a home.
Homeowners also seem concerned that if they were to sell and buy a new home, they would have to pay for a more expensive mortgage. Given the record-breaking mortgage refinance volume we have seen in the past two years, it is highly possible that many homeowners do not want to sell and give up their current low monthly payment.
What’s also interesting is that many homeowners – even while sitting on their homes most likely increasing in value – are still not entirely recovered from the stress from the last housing crisis. Among all homeowners nationwide who say they would like to sell, downgrade or upgrade to another home, 62% agrees “I would like to sell or upgrade but the 2008 housing crisis still makes me worried”. It is possible that many of these homeowners experienced the crisis first-hand, and have now become more cautious about participating in a hot market.
Another element we examined is homeowners’ attitude toward a switch to renting. If they think it is now a good time to sell but they don’t want to buy high after they sell, how about the possibility of renting after they sell? The result was glaring that while 55% of all homeowners believe renting could be a favorable scenario for them, 72% of all homeowners ages 50+ do not believe renting would be a favorable scenario.
If selling and then buying high, or selling and then renting are both not viable alternatives, what does that leave us then? What we have now are many mature Gen-Xers and Baby Boomers who are too cautious to sell, and a shortage of home inventory for the next generation of homebuyers.