“Thus, as counter-intuitive as it may seem, the high share of underwater homes is helping the market by at least keeping the supply of homes for sale low.”
In an article in Core Logic today entitled : “The positives of Negative Equity”, ( http://www.dsnews.com/articles/positives-of-negative-equity-on-home-prices-corelogic-2012-06-11), the author draws several conclusions which are worth your consideration!
Locally, we’ve had a very modest rise in home prices . . . just under 2% over last month and last year on average . . . .but, nearly 5% in “affordable homes”! Thanks to LOW SUPPLY of homes, weak existing demand for homes is still sufficient to drive an increase in prices. Demand alone could not drive this increase in this economy with so much unemployment, under-employment, and general employment insecurity. But the fear driven reluctance to engage in a short sale has reduced the SUPPLY of homes enough to create modest bidding wars in certain areas and in certain lower price ranges.
What should you conclude from this?
First, if you are a buyer, DON’T be one of those buyers who says “I will never buy a short sale, I’ve heard too many horror stories. . . “. Estimates are that one-third of our market is “upside down”, and that means that if you automatically reject all short sales, you are limiting yourself to EVEN LOWER SUPPLY and that will mean that you will be more likely overpay than the buyer who is willing to be patient and work through a short sale.
Secondly, if you are a homeowner stuck in an upside down investment, don’t continue to “throw good money after bad” and assume you have no options! Before you find yourself in so much hardship that you can no longer afford your existing home, you should get professional help evaluating the consequences to you of selling your home now. There may never be a time when there is less stigma associated with not being able to fully pay back a mortgage than there is right now.
Finally, be on the lookout for friends or acquaintances who may be stuck in the mindset that they have no options when they are “under water” in their home. First time homebuyers and even investors may well be able to rescue such homeowners with fair and arm’s length offers through short sales and find a good residence or a good investment in the process! Savvy investors throughout the Commonwealth are seeing the light and making offers on upside down homes. Both the buyers and the sellers can be protected with carefully crafted CONTINGENCIES in the sales agreement to make sure that the deal works for them after the homeowner’s lender makes a decision on how much of a short sale they are willing to take and/or how much deficiency the seller will be expected to pay back after closing.