During the heated market of the last several years homes sold very quickly. Today in May 2008, my area has at least a 10-11 month inventory of homes. Almost every day for the last 7 months about 3 times more homes have been listed for sale than closed (sold). Today was no different. Far more homes came on the market than closed or went pending.
It makes me wonder – WHY are so many people trying to sell their homes at the same time? Don’t they know the news? Don’t they know anything about or have even rudimentary knowledge about SUPPLY and DEMAND.
However, the daily statistic that I believe holds the key to why this market is slow is the Back on the Market list. On most days the number of homes that were returned to the market from the Pending or Under Contract category outnumbered the ones closed (sold). Why are so many deals falling through? Could it be because FINANCING has become so hard to get?
YES. The banks that were over exposed to the subprime risk or perceive they have too much risk, have stopped making loans. Their offices are open. Their loan agents are at their desks. Their processors and underwriters are on duty. BUT, somehow, no matter how much documentation, paperwork, proofs, tax returns, W-2’s, 1099’s, statements, verifications of deposit, etc. are provided, there is always one more thing they need. Of course the contract expires before the loan is approved.
By not lending very much money, even to excellent credit risks, the banks are building up reserves to balance out projected losses and writeoffs. But, how can they earn income without lending? A bank’s income comes from the difference between money in and money out. They borrow from depositors at a low rate of interest and lend to borrowers at a higher rate of interest. When they need some extra they borrow from the Federal Reserve (which creates money out of thin air by accounting entries, but that’s another whole story). By not lending they will grow reserves at the expense of income.
There are plenty of buyers in the market. There are plenty of underpriced and fairly priced homes. There just aren’t enough serious lenders at the moment. Homes will start selling again as soon as financing is readily available for buyers who have down payment money and good to excellent credit.
This a a good time for “Private Lenders” to enter the single-family home financing market.