VAST INVENTORY OF UNDERWATER HOMES CAUSING LEAD SHORTAGE LEON MCKENZIE
Underwater Homes Part of the Problem
originally appraised when it was purchased. This means
that many, if not most, homes won’t be able to be
You may have heard the phrase “underwater” used
refinanced.
in the real estate market. What it means is that the
value of the property is less than the amount that it
What is the result? For the most part, homes that are
was originally mortgaged for. This is common with
underwater stay with their current owners until their
homes that were purchased before the recession
mortgages are paid off because the owners can’t afford
that started in 2008. For the homeowner, this
to sell them. This situation in the market is a direct
means that they are prevented from many options
contributor to the shortage of real estate in the market.
that would allow them to move to a bigger home or
Trey Garrison writes, “Redfin asks what’s causing the
even to downsize.
inventory crunch and what they found is that, according
to RealtyTrac, more than 7 million homeowners can’t sell
When a home is underwater, the owner, in order to
because they’re deeply underwater, meaning they owe
sell the property would have to provide the gap
more on their properties than they’re worth. That figure is
between the sale price and the mortgage value.
falling as rising home values put more homeowners into
Most homeowners don’t have the financial
the black, but those same price gains, coupled with weak
wherewithal to come up with the thousands of dollars
wage growth and tight credit, are discouraging many
that it would cost to get out of a current property and
from selling and trading up.”1
move into a new property when they have to come to
the closing table with cash.
Overall Inventory is Well Below Average
Due to the challenges with home values, there are
fewer homes on the market than need to be in order
to support a strong real estate investment market.
Garrison said, “Nationwide, the total number of unsold
homes rose 5.3% in March to 2 million, but at the
current pace of sales, that supply would be exhausted
in only 4.6 months, according to the National
Association of Realtors. In the 50 markets Redfin
analyzed, about 30% of unsold houses were fresh as
Homeowners with properties that are underwater are
of March 31, up from about 24% three years ago. In
also generally unable to refinance their homes as
Charlotte, where the number of properties for sale is
most banks require a full appraisal of the property
at its lowest in at least three years, fresh listings —
before they will close on a new loan. When a home
those less than 30 days old — accounted for only
is underwater, the new appraisal will establish the
5.5% of Charlotte’s inventory as of March 31, also a
current value of the home, which may be tens of
low. Last month, only 55 new properties came on the
thousands of dollars below where the home was
market, compared with 225 a year ago.” 2