Report: Home Buyers are In, Sellers are Out

The Mortgage Bankers Association (MBA) has demonstrated again that thernpublic’s perception of the real estate market depends on which side of thernclosing table they plan to sit.    </p

A study entitled “The Great Recession and Attitudes Toward Homebuying” sponsoredrnby MBA’s Research Institute for Housing America (RIHA) concluded that prospectivernhomebuyers believe now is a good time to buy, given today’s low home prices andrnlow mortgage interest rates, but potential sellers are nearly unanimous inrnreporting that it is not a good time to sell a home, citing difficulty inrnfinding buyers at desired sales prices.  </p

The study was conducted by Professor Gary V. Engelhardt of SyracusernUniversity utilizing 30 years of data from the University of Michigan’s Surveyrnof consumer attitudes toward homeownership before, during, and after the recentrnrecession.  Key findings from the studyrninclude:</p<ul class="unIndentedList"<liDespite the current situation with high unemploymentrnand slow economic growth almost 80 percent of American households believe thatrnnow is a good time to buy a home.</li<liThe current recession is notable for the deeplyrnnegative sell-side of the market where positive sentiment is at an historic low. This is strongly related to difficulty inrnfinding buyers at desired sales prices and to the shadow inventory ofrndelinquent mortgages that may become foreclosed properties.</li<liOver the last two decades, the value of mortgagernpurchase originations has tracked home-selling sentiment more strongly thanrnhome-buying sentiment.</li<liThe current positive home-buying attitudes andrnnegative seller-sentiments are forecast to remain fairly constant over the nextrnfive quarters. This suggests thatrnselling sentiment and, hence, market activity, will remain sluggish in the nearrnterm.</li<liPositive sentiment toward homebuying isrnparticularly strong among young, education, white and Hispanic households.</li</ul

Engelhardt said the pattern of home-buying sentiment during the currentrnrecession looks very similar to that of past recessions. Homebuyer sentimentrnfalls as the unemployment rate increases, and improves as job growth returnsrnand housing becomes more affordable.  “Whatrndistinguishes the current recession, though, is the dramatic decline inrnhome-selling sentiment. From 1992 through 2005, positive home-selling sentimentrnfluctuated between 40 and 60 percent. Since 2005, sentiment has droppedrnprecipitously, to around 7 percent currently, even while home-buying sentimentrnremains high.” </p

He said that potential sellers have not adjusted their price expectationsrnfast enough to bring buyer and seller expectations in line with each other asrnmarket values have fallen.  “Therernare a number of likely reasons for this,” he said.  “First, seller-expected prices may be tied tornkey past market values, such as the purchase price of the property, or what arncomparable property may have sold for in the recent past. Second, underwaterrnhomeowners cannot adjust their minimum sales prices much below the outstandingrnmortgage balance, because they would need to bring cash to the table at sale.rnAnd finally, with large declines in market values, sellers now hold a highlyrnleveraged option that pays off with any future increase in prices.</p

“I expect that over the near term, positive home-buying sentiment willrnremain at levels typical of the last 30 years. In contrast, positivernhome-selling sentiment is expected to remain at historic-low levels. Thisrnsuggests that market activity will likely remain sluggish in the near term,rnconsistent with MBA’s forecast,” said Engelhardt.</p

The full report can be found here.

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