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Posted at 10:00 AM ET, 09/18/2012

What is keeping home sellers on the sidelines

Home prices are rising, but inventory remains at historic lows, frustrating would-be buyers who want to take advantage of low mortgage rates.

Wondering what is keeping sellers stubbornly on the sidelines? There are several reasons. Negative equity is a big one. Many people bought at the peak of the market. Until prices rebound, they can’t afford to move.

Economic uncertainty is another huge factor. With sequestration hanging over everyone’s head, no one wants to make huge purchases.  

“Other people might say to themselves, ‘Well, right now, with the limited inventory, there’s not very much for us to pick from, and so that’s why we’re not going to put our house on the market because we don’t want to have nowhere to go,’” said Peter Chinloy, a professor in the department of finance and real estate at American University’s Kogod School of Business.

This mind-set just seems to feed off itself. You won’t sell your house so I won’t sell my house, and as a result, nobody is selling his house.  

Bonnie Casper, president of the Greater Capital Area Association of Realtors and a real estate agent with Coldwell Banker Residential Brokerage, had another take on the situation. She suggested that some people bought large homes in the suburbs with an eye toward retirement. Once the kids were gone, they would downsize and buy a condo in the city using the windfall they expected to make on the sale to help fund their retirement.  

The problem is, these days two-bedroom condos in the city cost nearly as much as what a McMansion sells for in the suburbs because of the high demand for urban living, not just among 20-somethings but also empty nesters.

But it’s not just the lack of a return on their investment that is keeping these sellers on the sidelines.

“People are retiring and continuing to work,” Chinloy said. “They would like to get some income because they are concerned about their pension opportunities. . . . They don’t move so there is less migration of older people.”

And with fewer retirees heading down to warmer climates, there’s less turnover in the housing stock. 

“There’s another group that also looks at it as, ‘I’m retiring but I still want to be active,’” Chinloy said. “They say, ‘All my friends are here, so why do I need to go down and live in a retirement community.’”  

What will it take to lure sellers into the market? Higher prices would spur more people to sell their homes, but so far, despite high demand, prices haven’t gone up all that much.

Chinloy said that “shadow inventory” – the foreclosed properties that have yet to come onto the market – is in part holding prices down.  

“The other thing is we don’t have a huge amount of job growth, and people who are employed are not getting much, if any, wage increases,” he said. “So people are cautious.”

By  |  10:00 AM ET, 09/18/2012

 
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