Underwater Borrowers Holding Up Real Estate Recovery In Tallahassee

There was an interesting article on MSN Real Estate recently which outlined the amount of homes around the Country that are still underwater and thus are holding back the real estate recovery.

People who were first time homebuyers five to ten years ago should be "trading up" right now to a bigger, pricier home, but the collapse of the housing market has trapped many of them in place.

This large group of historically reliable buyers is missing from today's housing market, leaving us with lower demand, so their trap is our trap to share.

Fortunately, there is a way out of the trap for those that are paying attention.

Second Time Homebuyers Slow Real Estate Recovery

Long time readers of the Tallahassee Real Estate Blog know that we track (everything) that we can think of when it comes to housing market analysis. We have long been reporting that the current rate of demand, though much higher than we saw at market bottom two years ago, still is far below what we have historically enjoyed in the Tallahassee real estate market.

We have observed that roughly 1/3rd of the expected demand for homes in Tallahassee is missing.

Today, we will take our analysis a step further, using information from the MSN Real Estate article referenced above and our data, in order to identify which people are likely trapped "underwater" due to a home purchase in the past.

Normal Markets

Even in normal market conditions, we would expect some recent homebuyers to be "trapped" in their homes for an initial time period. The typical buyer pays about 4% in closing costs buying, and 8% in closing costs selling, so there is a 12% "trap" that needs to be overcome in even the best of times.

Typically, it takes from 3 to 5 years for a home to appreciate enough to "cover" those coming and going closing costs.

But what happens when we do not experience our normal rate of appreciation?

Median Home Values

When we examine median home values in Tallahassee, it is clear to see the housing bubble and subsequent bust that have brought so much chaos to our economy.

Median Home Value Tallahassee Florida

What I see when I look at this graph is that anybody who purchased a home "at market value" from 2004 until later could very likely still be underwater in their home.

Even people who paid cash or used a significant down payment will realize less than their investment were they to sell now, and I believe this very real fact is why 1/3rd of our demand is not in the market today.

If seven years is the magical move time, take a look at where home values were seven years ago in 2007! Are these people able to be selling right now?

The irony found in the graph above is that people who purchased in early 2012 likely have more equity than anybody else going back to 2002 (ironic because they have not owned the home for 3 to 5 years yet).

Second Time Homebuyers Should Move Up

If you are somebody trapped in a home and would like to move up, you should come and see us.

Don't make the mistake of thinking that waiting makes sense, you will lose money. Here is a simple way to look at it:

People who are waiting are likely thinking ... "I need to wait until my home is worth $X before I can afford to sell and move." While this is a common viewpoint, consider this paradigm ...

Whether you stay in the home that you own (and wait it out) or move to the home you want (and wait it out), the market is going to do what the market is going to do. Why not wait-out the market in the home that you want?

And I believe for people who are doing a move-up, this is the best course of action. Unfortunately, if you are trying to downsize, it might not be possible to make it happen.

So people who are underwater in their homes and would like to move need creative solutions to get moved, and we have many such solutions.

If you would like to know more about how to get out of your underwater home so that you can move to a larger or pricier home, just drop me a note and we can schedule an initial interview to see how we can help.

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