They say that most of the real estate agents are also real estate buyers.
In other words, they don’t just sell their property and disappear into thin air.
And they usually don’t hire either. Usually, they sell one house and buy another.
Thus, there is no inventory gain. There is no profit in the real estate market without churn, which benefits those who are paid for the work.
Like real estate agents, mortgage originators, title and escrow companies and more.
Sellers Don’t Want to Be Buyers Right Now
Here is the problem.
Given the lack of affordability and the current lack of supply, sellers today don’t want to be buyers (and who can blame them).
No one wants to be a buyer yet. It’s tough out there. This is not a secret.
Therefore, existing homeowners, who may have cheap credit, a low loan balance, a low tax base, and all the other advantages of buying over the years, can be “sellers.”
I have talked about this before. Sure, they will sell, but only just the right price.
And chances are the price doesn’t work for most consumers today because affordability is so low.
To add insult to injury, the price of the existing home owner must include in the actual costs of the seller who offers their lowest mortgage rate and takes the highest amount with the highest purchase price.
That tricky dynamic puts a lot of strain on supply that is already limited by sales.
We built on many years less than the housing crisis of the early 2000s, and this makes it worse.
That is why housing prices continue to remain stubbornly high despite affordability that should fall.
Today’s Home Sellers Want Top Dollar To Offset Replacement Property Math
If you are a home buyer today, you need to look at things from a real estate agent’s perspective.
Many current homeowners are sitting on 3% 30-year mortgages. Or even mortgage rates as low as 3%.
Their monthly payment sounds like a steal (and it is) compared to what a new buyer would face at today’s prices.
If they sell today and buy again (which as I said most plan to do), they not only lose their subprime mortgage, but they also take out a new loan at twice (or more) than what they are currently paying.
Additionally, they pay the highest price for their replacement home in a competitive market.
Statistics don’t pencil out for most sellers unless they’re getting top dollar for their current position.
So they list exorbitant prices and everyone tells them they rank too high.
But they don’t really care. They are happy to stay that way if they don’t get their price. They can be “dealers” with time on their side.
This allows them to list at the desired price and simply bid for their time.
Even in normal times, homeowners are emotionally attached to their homes. And because of the closing of the loan amount, they are financially strengthened.
That’s Why Supply Stays Tight And Home Prices Stay High
The result is straightforward here.
A vicious cycle of limited real estate, high home prices, and the reluctance of many existing homeowners to sell.
When fewer homes come on the market because owners don’t want to trade in their 3% mortgage and lower minimum balance for a new, more expensive one, inventory stays strong.
Meanwhile, several properties that come on the market are priced to compensate the seller for offering that low rate, low balance, low tax basis, etc.
They need some motivation and listing at a fire sale price don’t they.
As such, potential buyers who have been stretched by high interest rates and prices cannot afford it or choose to wait it out.
Sure, new construction helps to some extent, but it can’t completely eliminate this unusual trend, and there aren’t many new buildings in areas where people want to buy (think margins).
Builders face their own challenges today with high costs and tight margins, and they haven’t forgotten the housing boom of the early 2000s.
So rather wisely they don’t flood the market with commodities.
The result is persistent housing prices at the national level, even if some markets weaken, namely those with a high number of recent home buyers (those who lose less by selling or selling them).
Ironically, sellers’ “right price,” often the “highest price,” keeps the housing market from cracking in a meaningful way.
