This Halloween, many across the country are looking forward to being scared silly at haunted houses and cheesy horror movies.
But it appears that this October brings an unwelcome kind of fear: that of home sellers who are terrified to enter the market.
Once per month, mortgage giant Fannie Mae publishes their National Housing Survey that gauges consumer sentiment about the economy and housing market.
Fannie Mae asks a question that few other surveys ask: “Is it a good time to sell a home?”
The response is surprising. As of September 2013, only 38% of respondents say it’s a good time to sell. The rest apparently are sitting on the sidelines, waiting for danger to pass.
Though a whopping 72% of those surveyed say it’s a good time to buy, that might not matter if sellers are scared to at least try to sell their homes.
Sellers need to list their homes for sale if there’s any hope for adequate inventory for buyers. And many who want to upsize or downsize their home need to sell before they buy again.
Another report, the Pending Home Sales index for August 2013 published by the National Association of Realtors® stated that homes that were under contract had fallen 1.6% from July. They cited tight inventory as one cause to the slowdown.
So is home seller fear stalling the housing recovery?
Steve Calk, chairman and CEO of The Federal Savings Bank, thinks that’s a real possibility.
“The reluctance is driven by a lack of confidence in the stability of our government,” says Calk, “The uncertainty surrounding the sequestration, the debt ceiling, the government shutdown, and the direction of the Federal Reserve sends mixed signals on rising interest rates and has many Americans frozen like deer in the headlights.”
But Calk adds that there are ways to overcome this fear. “I would recommend (sellers) put their home on the market and buy a new home contingent upon the sale of their current home,” he says. Or, says Calk, they should make an offer only if the seller is willing to accept a 90-day closing period. This gives buyers who already own a home adequate time to sell their property.
Rick Sharga, Executive Vice President at home auction site Auction.com agrees that fear and uncertainty are playing into the housing market, but that there are more fundamental reasons for low inventory.
“Somewhere between 20-25% of all homeowners are upside-down on their mortgages,” says Sharga. “It’s difficult for this group of homeowners to sell their properties, especially without sacrificing their credit scores in the process, which would make it very difficult for them to qualify for a loan to buy their next house.”
Sharga says that another group of homeowners are not technically underwater, but don’t have enough equity or cash on hand for a down payment on another home.
Still others made it through the Great Recession by the skin of their teeth.
Sharga says, “There’s a third group of current homeowners who have gone through the recession and come out of it still in their homes, but with disastrously damaged credit scores due to narrowly escaping foreclosure, or having defaulted on other credit during the downturn.”
He adds, “These homeowners will stay put until they have a chance to eventually rebuild their credit.”
For many homeowners, it’s simply impossible to sell. But for those who can, Fannie Mae’s survey seems to indicate they may be petrified to make a move.
“If there is a ‘fear’ component,” remarks Sharga, “it’s probably related to uncertainty about the economy and the job market. Given that stress, many potential home buyers elect to stay put rather than move up. This takes thousands and thousands of potential sellers off the market.”
And sellers who are scared stiff might mean a very slow housing recovery indeed.