The Housing Market is Shrinking

08-26-2011 • CNBC.com

The foreclosure headlines today are that one third of all home sales in Q2 were of distressed properties (foreclosures and short sales), according to a new report from online foreclosure sale and data site RealtyTrac. The discount on those homes from comparable non-distressed properties was 32 percent. What the headlines don't say is that while the percentage of the market that's distressed rose from a year ago, from 26 to 31 percent, the actual number of distressed sales fell. The share only went up because the number of non-distressed sales fell, leaving the total pool smaller. And there's the biggest problem in housing today. The granular, organic, whatever you want to call it…non-distressed market is withering away. Sellers are afraid to put their homes on the market for fear of losing too much equity, which means there are fewer potential move-up buyers. First time buyers are choosing to rent in droves, as unemployment and the wider economy recover far more slowly than expected. This, despite the fact that, nationally at least, it now costs about the same to rent as it does to own. Just look at where the mortgage payment-to-rent ratio has gone over the past few years.