Where Are All Of The For-Sale Signs?

Why are there so few homes for sale despite rising prices? Members of the Federal Reserve Bank of San Francisco report that there are many reasons. Typically, higher prices reflect robust sales. However, prices have been rising even though sales remain stuck at low levels. The National Association of Realtors (NAR) reports that 4.5 million homes were sold in June 2013, which is roughly the same number as the end of the 1990s.

William Hedberg and John Krainer of the Federal Reserve Bank of SF report on why there are so few homes for sale:

Many homeowners are still underwater.

Many homeowners are still waiting for prices to rise because their homes are still worth less than the value of their mortgages. By allowing the prices to rise a bit more, they will be able to recover lost equity. Waiting until prices increase will allow many to cover the down payment on their next home purchase.

Putting your home up for sale is often expensive.

Even though the economy has improved, making home repairs and sprucing your house up to be put on the market can be extremely costly. As a result, sellers are continuing to wait for things to improve.

The housing boom and bust has changed the market landscape.

During the housing boom, the homeownership rate skyrocketed. Young households were willing and able to purchase homes and lending terms allowed creditworthy borrows to enter the market. Post housing crisis, homeownership rates have drastically fallen and inventory has made a shift from for-sale to for-rent.

People rent when they are nervous about the economy.

Renter-occupied units are unprecedented since the 1960s. Why? Because the for-rent rate is approaching the for-sale rent in many markets where foreclosure rates were high during the recession. The decline in homes for sale is directly correlated to the downward shift in the homeownership rate in these recovering markets.

Homeowners are thinking more “big picture” when it comes to a long-term view of the market.

With tighter credit and fewer homes being built, the pricing gamble can mess with recovery. Homeowners who aren’t pressed to sell can wait to observe the shift in the market. If prices go up and inventory stays tight, they may want to wait to see if prices will continue to increase, allowing them to sell at a higher price.