The Virtue(s) of a Slower, Quieter Housing Market
Apparently, at least a few industry players are trying to spin what is expected to be modest price appreciation in 2015 into something . . . bigger.
See, “Projecting 2015 Housing Prices Using Statistical Sleight of Hand.”
I don’t think it’s ever a good idea to embellish housing statistics, whatever they may be, but I’m especially puzzled that a calmer, slower housing market is viewed by some as a negative.
On the contrary, I see mostly positives associated with the kind of housing market people are expecting this year.
Three Positives & One Negative
One. For consumers — specifically Buyers — modestly increasing prices mean they don’t have to race into the market before things become unaffordable.
Don’t get me wrong: agents love clients who feel a sense of urgency.
But, we know how this movie ends: eventually, greed and fear (of missing out) drive prices to unsustainable levels, triggering a down cycle with lots of pain.
Wanna guess who’s inevitably hurt most in the sell-off?
Precisely the kind of marginal Buyers who anxiously jumped into an appreciating market while they could still afford something.
LIFO (“Last In First Out”) Buyers & “Wait ‘Til Next Year” Sellers
Positive #2 concerns Seller psychology.
In contrast to a more subdued market, homeowners who hear and read about juicy price increases have a big incentive to wait, keeping their homes off the market and suppressing inventory.
That has the ironic effect of further goosing prices — at least in the short run.
Alternatively, if such would-be Sellers do list their homes, too often it’s at an asking price that overshoots even the most optimistic market projections (memo to Sellers: Don’t do that. Or, if you do, prepare to spend many months (years?) in Price Reduction Hell).
Neither Seller behavior is conducive to a healthy, balanced housing market.
After the Adrenaline Rush
Which leads to the third reason that most seasoned Realtors — quite rationally — prefer a nicely burbling, 
balanced market to an overheated market.
While multiple offers can be an adrenaline rush (and financial windfall) for Sellers,* they’re torture for Buyers.
The time pressure and stress make for bad decisions, late nights, and — often 7-10 days later — Buyer’s remorse and broken deals.
For Buyers’ agents, guiding their clients through the stress of participating in multiple offers is . . . stressful.
Even listing agents, who would seem to be in the driver’s seat, can feel like they’re in the middle of a tornado while handling multiple offers.
Chief Negative
So, what’s the biggest negative for moderating housing prices and activity?
It leaves lots of underwater homeowners . . . still underwater.
While home prices fell about 35% nationally following the 2006 peak and have now retraced about 75% of that, there are still many areas — and many homeowners — where prices fell more and/or haven’t rallied nearly so much.
Unfortunately, that means there are likely millions of prospective Sellers nationally who — even after close to a decade(!) of mortgage amortization — still owe more than their homes are worth.
Stronger U.S. Economy; “Underwater Homeowners Unite!”
The good news for such people is that banks are now healthier — and presumably better-positioned — to absorb the write-downs associated with short sales.
It’s also the case that a healthier U.S. economy means that more underwater homeowners have the financial wherewithal to bring money to closing.
Then, there’s always my idea (from 4 years ago!) that underwater homeowners nationally should organize into a collective, which would have some real negotiating power with the banks.
Call it, “reverse crowdfunding.”
See also: “Groupon for Underwater Homeowners.”
Other Considerations; Treating Homes as Piggy Banks
Of course, a calmer market has other advantages relative to an overheated one.
When home prices gallop ahead, homeowners are tempted to treat their homes as piggy banks, and take out home equity loans that hollow out their equity.
Local municipalities can succumb to a similar temptation, aggressively hiking annual property taxes.
For the 90%-plus of all homeowners who don’t plan to move in any given year, that just increases their holding costs.
“Keeping Out the Riff Raff”**
Finally, a more balanced, calmer market keeps speculators and flippers away.
Good!
Let those folks go back to trading stock options, credit derivatives, and currencies.
Just don’t short the Swiss franc . . .
*Mitigating the pluses of multiple offers for Sellers: they’re often simultaneously home Buyers as well.
**What Minnesotans used to say, once upon a time, about the harsh climate.
