That is a question I have been asked many times this year: Why are homes not selling? Is it because there are not many serious buyers? Is it because homes are over priced? Is it because financing has dried up?
My answer at this particular time is YES! Its all three reasons. However I believe the main reason has to do with FINANCING.
There are fewer buyers than in previous years, but there still are enough serious buyers to fuel a good residential market. Its true that many homes are over priced, but there are enough homes reasonably priced to maintain a good market.
So, with enough buyers and enough good prices, why aren't homes selling? The lenders (banks, credit unions, and similar institutions) have gone from one extreme to another. For several years you could get a loan of any type just by walking in the door and asking. Today you have to prove to the lender that you don't really need the loan in order to get it.
Excellent credit is not enough. More than sufficient money in the bank or cash on hand is not enough. Good income is not enough. In fact all three seems to be not good enough. The banks now want all of the paperwork, tax returns, W-2's, 1099's, ID's, referrences, reports, and much more, that they waived from 2003 to 2007. They realized that they had empty shelves to fill, empty filing cabinets to fill.
Down payment, closing cost, and reserve money has to be proven to be seasoned or come from a close relative. No more saying I kept it home in a paper bag in the linen closet.
First time home buyers have to prove they paid rent for 2 or 3 years. Living with parents or aunts and uncles is not good enough.
Part of the problem is that many banks just don't want to lend now. They are holding onto every dollar to build up reserves to balance the massive writeoffs from their real or perceived mortgage losses. Subprime adventures have tainted the entire mortgage spectrum from the bottom to the top of the risk table. The more difficult they make it to borrow, the more money they can keep for reserves. But reserves don't earn interest or fees so by not lending they are really shooting themselves in the foot.
One day it will even out and probably return to the traditional 28-36 requirements. In the meantime, until the pendulum swings back to the middle, many good risk buyers won't be able to buy. I have many serious buyers who have excellent credit and money in the bank who have been turned down. They will eventually buy a home, just not now.