A Federal Reserve Board governor expects the supply of existing homes on the market will remain tight for some time, which will continue to be positive for house prices despite the huge number of seriously delinquent loans overhanging the market.
“I do not believe that a flood of houses on the market from households that are underwater or from bank REO is likely to materialize or to be sufficient to outpace growing demand,” said Fed Gov. Elizabeth Duke.
Speaking at the Mortgage Bankers Association’s Mid-Winter Housing Finance Conference in Avon, Colo., Duke noted that the number of homes for sale has fallen to the lowest level in a decade.
This inventory shortage is due to
She noted that cities that started 2012 with an outsized share of underwater homeowners saw some of the largest price increases last year.
Duke expects house prices will continue to rise, which will help underwater borrowers.
“Home price increases of 10% or less would be sufficient for about 40% of underwater borrowers to regain positive equity,” Duke said late Friday afternoon.
Yes, some of these formerly underwater borrowers will put their houses up for sale. But the sellers will likely turn around and buy a larger home or downsize, which would offset any increase in supply.
The Fed governor also expects mortgage credit conditions for many “would-be” homebuyers will remain tight and the “easing of these conditions will be a slow and gradual process.”
Fed data show purchase mortgage originations remained at very low levels in 2012 despite the decline in interest rates.
“For the housing recovery to gain true momentum, however, demand for housing among owner-occupiers must increase,” Duke said.
