The sharp drop in homes for sale poses a tough choice for buyers: Jump in now and compete with hordes of others or wait until inventory improves.
If you buy now, you might have to pay above asking. But if you wait, you could end up paying an even higher price and a higher interest rate if you need a loan. That’s because inventory won’t improve until prices rise enough to get more homeowners to sell and more builders to break ground. The inventory shortage is especially acute in California. Of the 30 largest housing markets, the four with the biggest drops in homes listed for sale compared with February of last year were Sacramento (48 percent), Los Angeles, San Francisco (41 percent) and San Diego.
Although listings are increasing on a month-to-month basis as the busy spring season gets under way, inventory won’t start rising on a year-over-year basis for a year or more. Experts cite five factors contributing to the inventory shortage: — Fewer foreclosures are hitting the market. In California, where most foreclosures are handled out of court, the process is taking about 11 months on average.
– Many people still owe more than their homes are worth. If they sold now, they would have to come up with extra cash to pay off their loan.
– Even if they are not underwater, many owners won’t sell for less than they paid. If they bought near the peak, it may take a while before they are ready to budge.
– Many people, even if their homes are worth more than they paid, won’t sell because they are afraid they won’t be able to buy another house. “It becomes a game of musical chairs; they are afraid to get out because they can’t get back in. This becomes “a self-reinforcing cycle” that keeps homes off the market. — The housing bust put new construction on hold. The shortage comes at a time when demand is rising in San Diego, not just from regular buyers but from investors, second-home buyers and foreign buyers, especially from Asia.
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