Move-Up Buyers Staying on the Sidelines
With the current situation on the real estate market, it has never been more convenient to purchase a home. The prices are dropping, but despite this fact Americans seem to consider that renting is a much better option. According to the National Association of Realtors, the price of houses that are on sale is 24 percent lower than the year before; thus, it is a complete mystery why people would rather pay rent each month than buy their own place. The answer actually is the immobile move-up buyer.
Even the numbers provided by the Mortgage Bankers Association show that the application for homes have dropped drastically. To understand the situation let’s take a common example. Mr and Mrs Jones would like moving to a bigger home. Now they have a baby and a dual income and they would even accept to pay a higher mortgage. The problem is that their mortgage on their current home is of $100,000, much more than the home’s value. And to make things even worse they cannot be helped by the bank or the state.
Moreover, their case is not singular. In their situation are found about twelve million other buyers who pay an incredibly high mortgage, considering their current home value, being in a negative equity position. Likewise, 2 million borrowers have no more than 5 percent equity. Real estate experts studied the situation and say that by adding that these move-up buyers will need only more 6 percent to pay their real estate agent, but 20 percent to pay their next mortgage. According to his opinion about twenty-five million buyers do not meet the amount of equity, an incredibly high number.
In addition, one of the most accessible solutions for the Jones’ would be to simply walk away, just like many already have. Due to the Obama administration which is constraining its program that pay lenders need to slash mortgage balances, still recently two mortgage giants, Freddie Mac and Fannie Mae officially announced they will not participate. The administration states that if the principal is reduced the borrowers will no longer walk away. To respond, the representative for Fannie and Freddie has said that they afraid the case in which people will miss paying their debts only to qualify in the program. The Jones affirm that they would never do such a thing.
The couple declared that they will continue paying. They said that they were completely aware of the situation when they sat down, signed the papers and agreed with the contract. It was a mature decision and the do not want to find themselves in a situation where the bank has to come and take their home away. Therefore, they won’t back down from paying their mortgage.
Nevertheless, they will not move either and will not help in any way the housing recovery. Currently the market is in a dead point that seems impossible to overcome. If so many people are in such unpleasant situation and even more people avoid lending money to purchase a home how can the situation get better?