Chicago Relocation

Affordable Homes Harder to Find?

September 27, 2014

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John D’Ambrogio

A recent Zillow report indicated that ‘starter’ homes – the most likely choice for first time homebuyers, are disproportionately less available than higher priced homes.

Why?  Seems like the main culprit is water.  As in ‘under water.’ More and more of these homes have negative equity, which is a huge huge drag on inventory in many markets.  These owners as unable (or unwilling) to submit to the short sale process or to bring cash to the table.

Not that things are not getting better.  The percentage of Homeowners who owe more than their home is worth has declined steadily for the last two years, now hovering around 20% of all homes. But that is still almost ten million homes!

However, a closer look at the numbers reveals that the depth is not equally distributed over value ranges: a whopping 30% of the bottom third of home values are underwater, compared with 18% in the middle and about 10% in the top third.

According to Zillow Chief Economist Stan Humphries:   “It’s hard to overstate just how much of a drag on the housing market negative equity really is, especially at the lower end of the market, which represents those homes typically most affordable for first-time buyers. Negative equity strains inventory, which helps drive home values higher, which in turn makes those homes that are available that much less affordable.”