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When will underwater homeowners finally sell?

Posted by Scott Van Voorhis July 20, 2012 08:34 AM

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It's actually a pretty crucial question given the current state of the housing market.

Buyers jumped off the fence this spring big time, but they too often wound up frustrated by the lack of choices out there.

Even as the market has improved, the number of homes on the market in Greater Boston has plunged, falling more than 19 percent since July 2011.

So what's behind this dearth of decent homes on the market?

Well for one, there are still too many homeowners out there who bought during the bubble years and find themselves underwater on their mortgages.

Sure, some would like to sell, but not at a loss.

In fact, underwater homeowners in Massachusetts on average are drowning in $85,000 in negative equity, according to Banker & Tradesman, citing figures.

Many potential sellers are simply opting to fence sit.

However, there may be some reasons for hope.

B&T, in an article that ran July 15, points out that 70 percent of eligible homeowners across the country are now receiving loan modifications. In Massachusetts, more than 21,000 mortgages have been modified so far.

The recent foreclosure settlement between the nation's biggest banks and state attorney generals is also having an impact as well, the story notes.

Banks are now starting to write down principal as well as cut rates, a big step lenders have long hesitated to take.

Finally, home prices appear to have finally bottomed out here in the Greater Boston, with the last Case Schiller report from May finding a .1 percent increase.

That all said, it seems unlikely we are going to see a rush of homeowners scrambling to put their homes on the market.

The number of and quality of homes on the market may gradually improve - it can't get much worse - but the imbalance is here to stay and may be hard to overcome.

We are not exactly the new home construction capital of the country. The last time we saw a surge of new homes built in the Boston areas was all the way back in the 1980s.

What's your take?

This blog is not written or edited by or the Boston Globe.
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Scott Van Voorhis is a freelance writer who specializes in real estate and business issues.

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