Recent housing market statistics show the trend of increasing for-sale inventory continues. A more-than-ample supply of regular homes for sale compete with an ever increasing inventory of record levels of foreclosed or repossessed property for sale. Because buyers continue to face the ongoing extraordinarily tight lending environment, they are unable to secure mortgages to work down the inventory. Both sellers and buyers are facing a type of inertia unseen in previous housing markets.
One trend surfacing out of this situation is the re-emergence of lease option, lease-to-own and owner-financed real estate deals. Listings for homes with owner financing available or for lease-to-own consideration are becoming more prevalent nationwide. These types of arrangements were rarely seen and not readily available during the years of easy credit that built the housing bubble and ultimately helped usher in the real estate crash. Now with banks literally keeping motivated homebuyers on the sidelines, motivated seller owners are taking financial matters into their own hands.
For those sellers lucky enough to have substantial equity in their home for sale, owner financing is making a strong come back. Although home prices have fallen substantially, enough sellers are either free-and-clear owners or have such a small outstanding mortgage balance that it is still possible to use equity to hedge their own private mortgage to the right buyers. People previously adverse to dealing directly with the long term financial aspects of their home sale are warming up to the idea of becoming their own private bank.
Lease-to-own listings are also becoming more visible in many hard hit markets. These properties appeal to both: the buyer who is still not ready to buy immediately, but has a strong desire to settle down and work his way into home ownership over time; and the seller who finds the financial dealings of owner financing too daunting. These sellers find it easier to play landlord, but with a limited horizon as their tenant slowly contributes to buy out the property from the lease. Akin to putting a house on lay-away, the lease-to-own approach is viewed as a win-win by parties slowly rediscovering this home purchase approach nationwide.
Depending on how the owner-financing and lease-to-own trend grows in the future, we may soon see market correction mechanisms mature to remove the barriers of the current inventory vs. funding stalemate. The primary players today (traditional mortgage lenders and conformist property owners, many of which are banks themselves or government entities who’ve repossessed the home) may find themselves on the sidelines as new paths to navigate the distressed housing market are blazed by motivated participants.
