Are We On the Brink of a Homebuying Frenzy?
Housing experts have noted that in the last few months, there has been a significant uptick in demand for homes by consumers eager to take advantage of still-low home prices and record-low interest rates. And soon that demand might spike even higher. While there's been considerable talk about the nation's shadow inventory -- that is, homes that are in foreclosure, or homes not being put up for sale until the market improves -- being a factor that holds back home prices, it seems that something now being referred to as "shadow demand" could have a positive impact, according to new data from Altos Research.
This pent-up demand from potential borrowers is due largely to the financial problems that millions nationwide ran into over the course of the past several years. In general, these consumers would have liked to have entered the housing market years ago but were not able to do so for various reasons, both because of their personal finances and the uncertainty in the broader housing market.
Between 2008 and 2010, there were as many as 2 million people who might have wanted to form their own households but didn't because of the effects of the recession, the report said. On average, between 1997 and 2007, about 1.3 million new households were created annually, due to both immigration and young people becoming financially independent. But after the housing bubble burst and the economy took a hit, that number shrank to about 600,000 per year.
Now, with the various improvements seen nationwide -- not only in housing but the broader economy -- it may be that these people who fell behind in the past are getting ready to flood the market and significantly increase demand for what is currently a rather limited number of available properties, the report said. In some areas, they may already have started to trickle in. That, in turn, will likely lead to even more price increases that could help to bring more underwater homeowners back out from under negative equity; the Federal Reserve Board recently estimated that if home prices were to gain 10 percent of their current values, it would bring about 40 percent of these borrowers back to being right side up.
However, all these buyers coming back into the market might not be a positive for other buyers. Recent polls show that many are already growing frustrated with their difficulties in closing deals because of already-high competition for listed properties.
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