Will Housing Feel a 'Saw-Tooth' Effect?

May 27, 2010

Source: CNNMoney.com, Les Christie

Some housing experts are predicting what one calls a "saw-tooth bottom" to the housing market driven by a shadow inventory that may include up to 4.5 million properties.

This issue isn't just bank-owned homes that aren't yet on the market, but sellers who would like to sell but fear they can't. "These sidelined sellers closely watch the market for signs of a possible turnaround and rush in if there's a hint of good news," says Leslie Appleton-Young, chief economist for the California Association of REALTORSŪ.

This rush to sell drives prices back down - hence, the "saw-tooth" description.

Stan Humphries, chief economist for Zillow.com, describes the potential problem this way: "Prices go up; inventory rises, which sends prices down again. That plays out for three to five years of no appreciation. ... Without price appreciation, it leaves more home owners in negative equity. That's toxic. Any setback, like a job loss, they go into foreclosure."

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