by JUSTIN T. HILLEY
Most Americans feel now is a good time to buy a home, but those who want to sell are having difficulty finding buyers at desired prices, causing seller sentiment to fall to record lows.
The low opinion is causing a wide gap between homebuying and home selling that won't narrow for at least the next five quarters, according to a new report by the Mortgage Bankers Association's Research Institute for Housing America.
From 1992 to 2005, positive seller sentiment fluctuated between 40% and 60%, according to the report. Since 2005, sentiment has plummeted to 7.6%, even while homebuyer opinions remain high. Despite high unemployment, slow economic growth and problems plaguing the economy, nearly 80% of American households believe now is a good time to buy a home.
Today's pattern of homebuying sentiment looks similar to past recessions, but what is different is today's historically low positive seller sentiment, according to Gary Engelhardt, Syracuse economics professor. The large overhang of mortgages past due or in foreclosure is a major factor for the difference. As market values have fallen, potential sellers have not adjusted their target selling prices downward fast enough to bring buyer and seller sentiment more in line with one another.
Engelhardt said it is difficult to determine the main driver of the gap, but offers a few more possible explanations for the discrepancy.
He says seller prices may be anchored to past market values such as the purchase price of the property or what a comparable property sold for recently, especially around the market peak.
"If owners update these anchor prices infrequently, then a wide gap in buyer and seller sentiment would emerge in the face of sharp, prolonged declines in market values, such as those seen in the last few years," Engelhardt says.
He also cites the underwater homeowners who can't or won't adjust their selling prices to below that of their outstanding mortgage amount, as they would need to bring cash to the table to pay off the mortgage plus transactions costs.
Currently, about 20% of all homeowners with mortgages nationally are underwater. In some particularly hard-hit markets, as many as half of all homeowners with mortgages are underwater. Those are the same places with the highest incidence of delinquent mortgages and foreclosures.
Also, with large declines in market values, sellers now hold a highly leveraged option that pays off with any future increase in prices, meaning there may be increased value in waiting, either to initially list, or to keep, the property on the market. This could hold prices high enough to drive a substantial wedge between the existing buyer and seller. And a poor jobs market with limited mobility, a key driver of housing-market transactions, may exacerbate this.
Analyst expect home prices to stabilize in 2012.
The current lack of positive sentiment cuts across almost all demographic categories and regions. Positive seller sentiment is stronger among nonwhite households.
Engelhardt says that over the next five quarters, positive homebuying sentiment is forecast to align with current and long-run average levels. In contrast, positive seller sentiment is projected to remain at current and historically low levels. This indicates that home-selling sentiment and, hence, market activity, will also remain sluggish in the near term.
URL to original article: http://www.housingwire.com/2011/12/29/gap-between-homebuyer-and-seller-sentiment-at-record-level
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