May 2, 2013

They're ready to buy – but where are homes for sale?

Growing confidence in the economy is stymied by a shortage of houses and an overabundance of bidders.

By SCOTT MAYEROWITZ The Associated Press

GRAND RAPIDS, Mich. - Beth Heinen Bell and her husband, Christian, are sick of renting.

click image to enlarge

Christian Bell and his wife, Beth Heinen Bell, view a home for sale in Grand Rapids, Mich. The couple is frustrated by the small number of houses on the market. They “wanted a day to think about” one house they liked, only to have it snapped up by someone else.

The Associated Press

They want more space. They'd like to host friends for dinner. And now, having seen the real estate market start to rebound, they want to turn housing payments into long-term equity.

So after a decade as someone else's tenant, the Bells, like a rising number of Americans, are finally ready to buy a home. Yet they're running into an obstacle that's keeping the national housing recovery in check: There aren't enough homes for sale.

The housing shortage around Grand Rapids, Mich., a city known for its furniture industry and sleek downtown hospital complex, is fairly typical of what the country as a whole is facing this spring.

Some markets along the East and West coasts have grown red-hot. A handful of other cities remain depressed nearly four years after the Great Recession ended. But many more places are like Grand Rapids -- a metro area of roughly 1 million that is strengthening slowly but steadily.

Like so many others, this Midwestern city 150 miles west of Detroit never experienced either the buyer frenzy or the price collapse that marked the boom and bust. Yet it, too, was affected. Prices fell. Homeowners lost equity. And now, many remain unable or unwilling to sell.

The shortage of homes is occurring just as ordinary Americans want to buy again. More of them feel confident about their job and retirement account. Mortgage rates are near historic lows. And prices are rising again, easing fears that new buyers might lose their investment in a home.

"The last four years have been rough," says Christian Bell, a 31-year-old Presbyterian minister. "But housing prices are starting to come back up."

A tight supply isn't the only factor slowing what is otherwise shaping up as the strongest spring buying season since the housing boom ended nearly seven years ago. Some Americans have grown to prefer renting. Others who would like to buy lack strong enough credit or a large enough down payment to meet the stricter standards banks now impose.

Part of the reason for the supply problem is that when the housing market collapsed in 2006, many people lost so much equity in their home that they were unable or unwilling to sell. Prices have started to rise, but not enough to restore what many lost. Some still owe more on their mortgage than their home is worth.

Even many who have enough equity to sell want to wait for further price increases.

"Every buyer wants to buy at the bottom, but no seller wants to sell at the bottom," says Stan Humphries, chief economist at real estate information site Zillow. "They've got this hypothetical price that they think the house is worth at the peak, and they don't want to sell below that."

Others don't want to leave. During the depths of the recession, they chose to renovate their house instead of finding a new one. After paying for renovations, they now feel more invested and comfortable in their home.

That leaves many first-time buyers like the Bells -- a group that makes up about one-third of buyers -- competing for a small number of homes.

In a few especially hot areas, such as around San Francisco and Seattle, some of the same kinds of bidding wars that inflated the housing bubble are back. Crowds of buyers are creating traffic jams outside open houses.

"People have been wanting to move for a very long time," says Glenn Kelman, CEO of online real estate broker Redfin. "Somebody rang a bell and said the boom is back, and nobody wants to be late to the party."

(Continued on page 2)

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