Homes for Sale Grow Scarce as Sellers Await Higher Prices

A real estate agent near California’s Silicon Valley seeks sellers by combing property records for people who’ve owned their houses for at least 40 years. A Denver-area broker offers half his commission for a listing, while a counterpart in South Florida hosts happy hour gatherings at bars to loosen up homeowners reluctant to sell.

Real estate agents, who spent the six-year U.S. housing collapse coaxing buyers off the fence, are now hunting for sellers as home inventories hover near lows last seen in 2005. A scarcity of properties signals the housing market’s uneven recovery as purchasers trying to take advantage of record affordability run up against homeowners choosing to stay put in properties that aren’t worth as much as they owe.

“It’s a sign of transition from a slow slide down to what hopefully will be a solidly improving market,” Susan Wachter, a professor of real estate and finance at the University of Pennsylvania’s Wharton School, said in a telephone interview. “We’re not going to have a healthy market until we can have move-up buyers purchase homes and not simply stay in place.”

The number of homes listed for sale in the U.S. fell 22 percent to 2.37 million in March from a year earlier, according to the National Association of Realtors. That’s a 6.3-month supply at the current sales pace, which is considered by the association to be a balance between buyers and sellers. In April, inventories fell to less than a three-month supply in markets including San Francisco, Silicon Valley, Denver, Phoenix, San Diego, Los Angeles, northern Virginia and Seattle, according to online brokerage Redfin.

‘Lack of Sellers’

“The places where the market is most competitive -- like Washington, D.C., Phoenix and San Francisco -- are where sales volume is actually declining,” Redfin Chief Executive Officer Glenn Kelman said in a telephone interview from Seattle, where his company’s based. “The limiting factor on sales volume isn’t a lack of buyers. It’s a lack of sellers.”

Silicon Valley homes were on the market for a median 49 days in April, down 29 percent from a year earlier, according to Altos Research LLC. That compares with a median 107 days in 30 metropolitan areas tracked by the Mountain View, California- based real estate data company.

Phyllis McArthur, a Realtor in San Mateo, California, sent letters to 18 homeowners who bought their properties more than four decades ago, asking if they were willing to sell to families who want to put their children in the school system.

“I got a call back from one gentleman who said, ‘They’ll have to carry me out feet first,’” McArthur said. “I said to him, jokingly, ‘When you feel yourself slipping away, will you call me?’”

Record Affordability

A housing affordability index that’s based on a combination of resale prices, household income and mortgage rates reached an all-time high in the first quarter, the National Association of Realtors reported today. The index shows that a family with the median income of almost $61,000 could afford a $325,500 house, which is more than double the median existing single-family home price of $158,100 in the U.S.

Finding a seller takes work. The average person who bought in the last decade would lose money on a sale, because home prices have plunged to October 2002 levels, the S&P/Case-Shiller index of home prices in 20 U.S. cities shows. About 11.1 million homeowners have negative equity, or owe more on their mortgages than their homes are worth, which limits their mobility, according to a March 1 report by real estate data provider CoreLogic Inc. (CLGX)

Paying the Agent

An additional 2.5 million borrowers have less than 5 percent equity, meaning they probably would lose money after paying their real estate agent should they sell, CoreLogic said.

Prices haven’t recovered even as demand rises. Existing home sales this year through March were the highest for a first quarter since 2007, the National Association of Realtors reported on May 9. The median price in 146 metropolitan areas tracked by the group fell 0.4 percent from a year earlier to $158,100.

While it’s unclear when prices will increase, rising rents and record-low interest rates make now a good time to buy, Mark Kiesel, a Pacific Investment Management Co. managing director, said in a May 4 research note about his decision to become an owner again six years after selling his last house at the peak of the market in 2006.

The inventory has tightened as investors, drawn by bargain prices and rising rents, bought 22 percent of homes sold in the first quarter, according to the National Association of Realtors. That’s up from 21 percent of deals a year earlier.

Lifestyle Changes

Most home sellers list only if they must move because of financial distress, a new job or a lifestyle change, such as divorce, death, growing children or an empty nest, said Cari Linn, president of the Minneapolis Area Association of Realtors. The area’s number of homes for sale fell to a 4.6-month supply in April from 8.2 months a year earlier.

“One of our biggest challenges is getting inventory,” Linn said in an interview at a Coldwell Banker Burnet office in Edina, Minnesota. “We’ve got buyers now who can’t buy anything.”

Linn sent letters last month to 28 owners in a townhouse development in Eagan, about 15 miles south of Minneapolis, where one of her clients was looking for a house, a prospecting technique she has used rarely since becoming a Realtor in 1982. She received responses from owners of two units, neither of which her client wanted.

‘Domino Effect’

“We’re going to keep looking,” she said. “It’s all about the domino effect. People have to find a seller to move.”

Fewer bank-owned homes are coming to market as lenders comply with terms of a $25 billion February settlement to resolve allegations that the five-largest loan servicers seized homes without proper documentation. In the first quarter, foreclosure filings in the U.S. fell to the lowest level since 2007, RealtyTrac Inc. said last month.

Resales of foreclosures by Fannie Mae (FNMA) and Freddie Mac, the government-sponsored mortgage buyers, fell to 77,104 homes in the first quarter, down 18 percent from a year earlier, according to company filings.

In Florida, the state with the largest share of homes in the foreclosure pipeline, median prices are rising and transactions have declined for bank-owned homes. That defies predictions the state would face a flood of distressed properties, according to John Tuccillo, chief economist for the Florida Association of Realtors.

‘Seemingly Vast Iceberg’

“This seemingly vast iceberg has appeared on collision course with the Titanic of the real estate market,” he wrote in a May 4 report. “In fact, it appears that the market for distressed properties has stabilized.”

Another source of supply, the inventory of new homes, fell to 144,000 in March, the fewest on records dating to 1963, the Commerce Department reported April 24. Homebuilders, still reeling from the construction and land-buying spree of the past decade, have cut the number of so-called spec homes, which are built without a buyer already lined up. PulteGroup Inc. (PHM), the largest U.S. builder by revenue, reduced its inventory of such homes to 1,039 as of March 31, down 30 percent from the end of last year.

“Limited spec production allows our communities to sell from a stronger market position,” Robert T. O’Shaughnessy, chief financial officer of the Bloomfield Hills, Michigan-based company, said in an April 26 earnings call.

Bidding Wars Flare

As sellers sit on the sidelines, bidding wars are flaring up in Denver, Miami, Minneapolis, Phoenix, Seattle and Washington, where bargain hunters, sensing a market bottom, have stepped up shopping.

“The sellers are not willing to move because they don’t perceive that their house today is worth as much as it might be a year from now,” Jay Brinkmann, chief economist for the Washington-based Mortgage Bankers Association, said in an interview.

Troy Springston of Denver sent an e-mail to more than 6,000 fellow agents on May 1 asking for homes yet to be listed for sale and offering half his commission for a deal reached by May 11 for the couple he represents. His clients, who have a baby on the way, were scheduled to complete the sale of their current house that day and couldn’t find the right property to buy for less than $125,000, Springston said. They arranged an extension of the move-out date to May 18 because they hadn’t yet found a home to buy, he said.

“She’s due within a month and this has put some stress on them,” Springston said. “It has just been tough for them to find something they want because of the super-tight inventory.”

Decline in Listings

In Florida’s Miami-Dade County, the number of listings fell 35 percent in April from a year earlier, to a 5.7-month supply, according to Esslinger Wooten & Maxwell Inc., a Coral Gables, Florida-based brokerage owned by Berkshire Hathaway Inc. (BRK/B) In neighboring Broward County, the inventory fell 31 percent to a 4.2-month supply, Esslinger Wooten said.

Patti Reid, an Esslinger Wooten agent, hosts monthly happy hours at bars in central Broward County near the city of Davie, where she owns a house. She invites empty-nesters who might be interested in selling a single-family home and buying a condominium near the coast. The parties have helped Reid find four homes to sell, all of which landed buyers within a week.

She targets owners in Davie’s 1,600-home Forest Ridge community, which she calls a “farm area” for cultivating leads. Prices in Forest Ridge range from $200,000 to $500,000, down about one-third from the market peak, she said.

‘Miss an Opportunity’

“I tell them if they sell today or in two years, there won’t be a considerable amount of appreciation in their house and they might miss an opportunity to buy at the low end,” Reid said in a telephone interview.

In Broward, condominiums are gaining value faster than houses. Condo prices rose 10 percent to $75 a square foot ($6.96 a square meter) in April from a year earlier, compared with a 2.6 percent increase to $80 a square foot for single-family homes, according to Esslinger Wooten.

In the Phoenix area, listings fell 64 percent in March from a year earlier, according to an April 25 report by Michael Orr, director of the Center for Real Estate Theory and Practice at Arizona State University. Properties marketed by traditional sellers dropped 31 percent while distressed listings --including foreclosures and short sales, in which lenders accept prices lower than the mortgage balance -- plunged 81 percent.

“It’s hard to convey how difficult it is to find and buy a home that’s under $150,000,” Orr said in a telephone interview. “We’ve got a two-week supply.”

Investor Purchases

Absentee owners, including investors and vacation-home buyers, purchased 46 percent of Phoenix area houses in March, paying a median $116,900, up from $100,000 a year earlier, according to a May 4 report by DataQuick.

The inventory of homes in Minnesota’s Twin Cities area sank 29 percent in April from a year earlier to 17,312 listings, a 4.6-month supply, the Minneapolis Area Association of Realtors reported May 10. For homes with an asking price below $120,000 - - those most attractive to investors and first-time buyers --the supply shrank to 3.1 months in April from 7.6 months a year earlier as the inventory fell 43 percent to 3,802 listings.

The shortage seems magnified because move-up buyers are looking in the “safe zone,” near good schools, for three- bedroom, two-bath houses priced at less than $250,000, said Travis Callstrom, an agent with Re/Max Advantage Plus in Minnetonka, about 12 miles west of Minneapolis.

“It’s like the shoe store where everyone wants the size 7,” said Callstrom, who sold about 125 houses last year with his partner Laura Scott. “That’s the one they run out of first.”

Economic Improvement

The housing markets in cities such as Minneapolis, Miami and Phoenix have strengthened amid local economic improvement and declining unemployment. In places such as Atlanta, Chicago and Southern California, the supply of for-sale homes fell in March as prices continued to drop, according to Realtor.com.

That’s an indication that sellers in those markets are becoming discouraged, akin to a decline in the unemployment rate when job seekers lose heart, said Jed Kolko, chief economist for Trulia Inc., a San Francisco-based real estate information service.

“You can have the inventory down for a lot of reasons,” Kolko said in an e-mail. “As prices recover in markets nationwide, individual sellers and banks will put homes on the market that they’ve been holding onto while demand was weak.”

Two Steps Forward

In recovering markets, owners need to be persuaded that it’s worth taking a step back by selling for less so they can take two steps forward to buy more, said Greg Anderson, the broker at Re/Max Advisors West in Chaska, Minnesota. It’s the same as selling a stock at a loss to buy shares of a growing company, he said.

“It’s an old real estate adage: You always buy up in a down market,” Anderson said. “If you buy up in a down market, you make money on arbitrage.”

His clients Steve and Lee Ann O’Sell sold their home of 18 years in March for $200,000, about $60,000 less than it would have fetched in 2006. When it took only eight days to find a buyer, Lee Ann O’Sell worried the asking price was too low. Waiting for a higher offer might have allowed another buyer to grab the house they wanted to buy, Steve O’Sell said.

The O’Sells paid $450,000 for a 4,124-square-foot (383- square-meter) home, almost twice the size of the old one, with individual bedrooms for each of their three children and a golf course outside the backyard where they can walk their two dogs when the course isn’t busy.

“It’s a major, major upgrade,” Steve O’Sell, a salesman for Blue Cross-Blue Shield of Minnesota, said as he sat in his living room overlooking the second hole of the Chaska Town Course. “Two or three years ago, it would never have crossed our minds as a possibility.”

To contact the reporters on this story: John Gittelsohn in Los Angeles at johngitt@bloomberg.net; Prashant Gopal in New York at pgopal2@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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