We all know that, within the housing market, home sales are in the tank, foreclosures are up and prices are down from the past few years.

What a wonderful time to be a buyer, right? Don’t believe it.

If you live in the hardest hit areas like Miami, Phoenix, Las Vegas, Sacramento, Orlando or a few others, there are bargains out there for the picking.

But in most towns, the real values are few and far between. The nation’s housing market is completely dysfunctional right now, in my view.

3 Types Of Sellers In The Housing Market

Three types of sellers in the housing market are preventing prices from reaching their natural level.

• The first is the home seller who bought his house in the last five years. Many of these folks bought their homes with little or no money down and with adjustable-rate mortgages that have ratcheted higher, making the home unaffordable.At first blush, you might think that a distressed seller would bring their asking price down fairly quickly. But times are different now. Most of these folks are under water, some of them seriously. If they can barely afford the payment, they definitely can’t afford to bring $100,000 or more to closing to make up the difference between what they paid and what the home might reasonably fetch today.In other words, strike one.
• The second type of seller is the homeowner who bought before the housing mania really took off and therefore would be in a good position to negotiate his asking price. Except too often this seller pulled the equity out of his home to buy a new boat, or a house full of furniture or to pay off his credit cards.Because these sellers used their homes as an ATM – often two or three times – they are in exactly the same position as the seller who bought near the top of the market. They owe more on their home than what it’s worth. Therefore, they are unable to bring their asking price down to realistic levels.Strike two.
• The last seller to frustrate would-be buyers is the guy who bought his home before the run-up, didn’t pull out the equity, but simply can’t get out of his head what his home was worth “at the top.” He knows his neighbor got $650,000 for a similar home four years ago and – dagnabbit – he isn’t taking much less. He is an unmotivated seller – and a dreamer.Strike three. 

Housing Markets Nationwide – Bank Foreclosures At 50%

In many housing markets around the country, nearly 50% of home resales are bank foreclosures. The reason is obvious. The banks are willing to take a big loss. Most homeowners aren’t – or simply can’t.

Please don’t send me an e-mail reminding me that all real estate is local and your market in Salt Lake City or Charlottesville or wherever is different.

This dynamic is going on all over the country right now. And if the big slowdown hasn’t hit your community yet, just wait. It’s coming.

This is a highly mobile country. According to the U.S. Census Bureau:

• The average American moves once every seven years.
• More than 40 million people relocate each year.
• Fifteen million of them move more than 50 miles.

Most homebuyers are home sellers. If you can’t sell your home in one market, it’s difficult to buy one in another.

I’m not gloating about this, incidentally. I own two homes myself and I know that if I had to sell either one of them today, I would get a lot less than I could have a few years ago.

The Housing Market’s “Myth of the Buyer’s Market”

If you’re in the housing market to buy a home, however, get ready to discover “the myth of the buyers’ market.”

• It would be one.
• It should be one.
• But it isn’t.
• Not yet.

I expect home prices to grind lower for months… and perhaps years.

Potential buyers should look over the housing market listings in their area, but check the paper for auctions and bank resales, too. That’s where you’ll find the real bargains today.

Good investing,

Alexander Green
Investment U