3 Reasons Spring Weather Won’t Heat Up Home Sales

Just when the spring home-selling season should be revving up, it seems stuck in neutral

Mar 15, 2014 at 1:00PM

Ice
Source: Flickr / Robert S. Donovan.

March is here, and you might think that the recovering housing market will soar this spring, as a brighter economy and still-attractive mortgage rates converge to lift the sector to new heights. Even with the 2013 foreclosure rate falling to the lowest in five years , and home prices beginning to rise, however, the spring season looks more poised to fizzle than sizzle.

Why is the market in such a funk? Some analysts blame the severe winter weather, though housing starts in the Northeast jumped by a seasonally adjusted 62%. It seems that there are multiple issues at work here, which can be lumped into three major categories – the first of which impacts affordability.

Rising home prices and interest rates
While the increase in housing prices is a positive indicator for a healing market, the fact is that higher sticker prices mean fewer buyers lining up. And, though 30-year mortgage rates remain historically low, an increase from 4% to 5% translates into a $60 rise in the monthly payment on a $100,000 loan.

Add in the effects of new "qualified mortgage" rules that put more emphasis on the borrower's ability to repay the loan, and many prospective buyers have doubtless found themselves priced right out of the market.

Demand and inventory are low
According to online real estate brokerage Redfin, demand for houses has plummeted for the first six weeks of this year, with only an 8% increase in signed offers year over year, compared with a jump of 51% last year.

Some of this problem is likely due to the lack of homes for sale – inventory is at its lowest in four years. This issue is being compounded by a sort of Catch-22: sellers won't list until they find something to buy, which, in turn, is constraining the supply of available houses on the market.

Underwater borrowers are stuck in a rut
Rising house prices lifted another 4 million homeowners out of negative equity last year, but nearly 10 million still owe more on their mortgages than their homes are worth. This means that, even when they want to move, these homeowners cannot realistically sell at a loss. This scenario has the effect of keeping both houses and buyers out of the market.

This interactive map by Zillow makes clear just how prevalent this problem continues to be, six years after the financial crisis. For those who bought closer to the peak of housing prices, just breaking even might be an unattainable dream.

For these reasons, this year's house-selling season will likely be a disappointment to both buyers, and sellers. Sadder still is the fact that, for the very same reasons, next year is apt to look much the same.

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