Credit cuts out would-be homebuyers

First-time buyers are also considered instrumental to a recovery historically, because they create the move-up market, but investors, largely using cash, have replaced them.

Negative equity has also kept many potential buyers and sellers on the sidelines, but 2.5 million borrowers came out from underwater in the second quarter of this year, according to CoreLogic, which could put more supply on the market in the coming months.

Unfortunately, sellers are finding waning interest. Forty-three percent of sellers surveyed by Redfin, a real estate sales and data company, said they were disappointed in the buyer interest in their homes. The percentage of those who think it is a “good” time to sell fell sharply, from 48 percent in the third quarter of 2013 to 34 percent now. Their top concern about listing their home: “general economic conditions.”

(Read more: $1 million home fight)

The slowdown in signed contracts to buy a home this fall has caused some analysts to revise down their expectations for the year’s total sales. Capital Economics dropped its forecast by 100,000 sales to 5.1 million, but they see this as more of a pause than a reversal in the recovery.

“There are still reasons to be optimistic about the medium-term outlook for existing home sales. After all, even after the recent increase, mortgage interest rates remain low and affordability and valuation metrics are favorable,” according to analyst Paul Diggle.

Article source: http://www.cnbc.com/id/101168280

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