The 41-year-old policeman and his wife, Rebecca, an environmental consultant, bought the house six years ago. Because of falling prices, they now owe at least $25,000 more on it than it's worth.
The couple would like to move to a better neighborhood with better schools for their children, ages 7 and 4. But they'd have to write a check to cover the difference.
"We can't get out, because it would be too expensive," Andresen says. "It's very frustrating."
Homeowners like the Andresens inhabit just about every housing market nationwide, and their reluctance to sell is having an unexpected impact on the U.S. housing market, which is showing signs of stabilizing after years of declining prices.
Rather than a housing market defined by weak demand and falling prices, the market is now being hampered by a restricted supply of homes for sale as demand improves. That's leading to multiple offers in dozens of markets, rising prices in some and a more volatile housing recovery than many expected.
"When you get (houses priced) under $125,000, it's like a frenzy," said Linda Schlitt-Gonzalez, owner-broker of aColdwell Banker franchise in Vero Beach, Fla. "It's not unusual to have five offers."
Negative equity, also known as being underwater, is a big part of the issue. Nationwide, almost three of 10 homeowners with mortgages have no equity in their homes or less than 5% equity, says market researcher CoreLogic. Those homeowners would have to write a check in a traditional sale, so many are not selling. Other homeowners, seeing prices rise or stabilize after falling for six years, are holding out for more price increases, Realtors and real estate experts say.
"We thought, if demand was there, there would always be sellers. But instead the supply is sitting on the sidelines," says Stan Humphries, economist for real estate website Zillow. "The inventory phenomenon ... will make for a more volatile housing recovery than what we initially expected," he says.
Prices in certain markets may rise faster than expected, given shortages of homes for sale, then level off when homeowners and home builders add to supplies and banks unload more financially distressed properties, Humphries says. He had expected home prices to stop declining, then level off for years before trending up.
The nation had a 6.6-month supply of homes for sale in May, the National Association of Realtors reported. That's considered a balanced market. But NAR also reported "broad-based shortages" of lower-priced homes for sale in much of the country outside of the Northeast, "extremely tight" supplies in most price ranges in the West and "widespread" inventory shortages in much of Florida.
Of the 18 major markets tracked by real estate brokerage Redfin, 10 had less than a three-month supply of homes for sale in May. Those included Seattle, Phoenix, Denver, Sacramento, the San Francisco Bay Area, Washington, D.C., and parts of Southern California.
Tara and Steve Andersen are seeing the low inventory up close.
They're not selling their Southern California home, because they can't find anything to buy. Their town, Placentia, now has just a one-month supply of homes for sale, says data tracker ReportsOnHousing.com.
The Andersens started looking a year ago to move from their 2,100-square-footer into a bigger house with a pool. "We were looking for the house we wanted to live in forever," says Tara Andersen, 43, a professional fundraiser and mother of four.
With low interest rates, "We figured it was a good time to do that," she says. They estimate they have almost $200,000 in equity in their $550,000 home, which they've owned for 12 years.
The couple bid on a handful of homes, but each received about a dozen offers, Andersen says. Meanwhile, "prices have inched up," she says, and some homes have moved out of their price range.
Rather than move, the couple are considering adding a pool to their home. "We're feeling kind of stuck," Andersen says.
Phoenix hit hard
The impact of limited home supplies may be most evident in Phoenix, a major market that was pummeled by foreclosures.
In April, Phoenix-area home prices were up 9% year-over-year, according to Standard & Poor's Case-Shiller home price data. Nationally, prices were down 1.9%.
The Phoenix region had 50% fewer homes for sale in May than it did a year earlier, says Michael Orr, real estate expert at Arizona State University. Nationally, the May year-over-year drop was 20%, NAR says.
For homes under $250,000, buyer competition is intense. Multiple offers are common. One home recently got 95 offers, Orr says, and sold for 17% above its listing price.
Orr says Phoenix prices may level off during the hot summer months, when buying activity typically slows.
Phoenix-area foreclosures are also going up as banks work through more distressed loans in the wake of a national settlement earlier this year between state and federal officials and major mortgage servicers, Orr says. That will increase supplies, too.
Nationwide, the flow of bank-owned homes coming to market slowed 18 months ago, adding to the inventory crunch, but it may pick up again, as it has in Phoenix.
Fears that banks will flood the market with foreclosed homes, however, have been "scaled back," given that they haven't so far and that they are modifying more distressed loans, says Herb Blecher, senior vice president of mortgage tracker LPS Applied Analytics.
"Its good for prices to go up, but you see crazy things happening," Orr says. "In order for us to see a more stable housing recovery, the basic rule of economics requires prices to change enough to bring a new wave of sellers on the market."
Many of those prospective sellers are sitting tight - and may be for a while.
Less than 20% equity
Nationwide, 45% of home-loan borrowers have less than 20% equity in their homes, CoreLogic says. Sellers would generally need at least 20% equity to generate enough cash to turn around and buy a similar or larger home using a conventional loan.
If people owe 25% or more on homes than they're worth, they may not be right-side-up again for a decade, says Sam Khater, CoreLogic economist.
Supplies are shortest in markets where more homeowners are underwater, CoreLogic says.
It recently analyzed underwater borrowers and housing supplies in the nation's 50 largest metropolitan areas.
In those where more than half of the home-loan borrowers were underwater, the supply averaged 4.7 months in March. In markets with less than 10% of underwater borrowers, supplies averaged 8.3 months, CoreLogic says.
"Over time, (home) prices will increase and lift people out of debt," Khater says. "But the scale of this is too large for anything but time to cure."
Is the time right?
Rob Oyler, 42, a fiber optics executive in a suburb of Kansas City, Mo., is pondering whether time is on his side.
He and his wife, Leigh Ann, have owned their home for 10 years. They're considering selling so they can buy a bigger home for the family of five.
Interest rates, which last week averaged 3.66% for a 30-year fixed-rate loan, have enticed them to think about leaving a beloved home and neighborhood.
But they haven't taken the plunge. They suspect they'd get $20,000 less for their home than they put into it.
"We'd hate to take a loss on this house unless I know I'm getting a deal on a bigger one," Oyler says. "At the same time, interest rates have nowhere to go but up, and I worry that, if we don't sell, I'll be kicking myself in five years."
While the Oylers and Andersens have equity in their homes, Eric Berto does not.
He and his wife, Kelci, bought their home in Kent, Wash., almost four years ago. They thought they'd bought at the bottom of the market.
"We were seriously wrong," says Berto, 31, who works in public relations. The couple estimate they could get $250,000 for the home they bought for $100,000 more.
Berto is pursuing a lower interest rate loan so they can turn the house into a cash-flow-positive rental and still buy another home.
"Right now, we're operating under the assumption that the house will never again be worth $350,000," Berto says.
The dwindling inventories aren't confined to once-red-hot markets that took the biggest price declines.
In Minneapolis, inventories of available homes are down to a 4.5-month supply, says Barb Jandric, president of Edina Realty, the largest brokerage firm in the Twin Cities.
Mike and Annie Resop tested the market in January, putting their 2,500-square-foot suburban Minneapolis home on the market.
They listed it at the "high end," $269,000, Mike Resop, 31, says. They purchased it in 2008 for $250,000. No offers came. They considered lowering the price.
Annie, an administrative assistant, and Mike, a truck driver, made a list of the pros and cons of selling. They'd leave a great neighborhood and good friends. But they'd buy a place with more land and a nicer backyard.
They decided not to sell. The couple have since made closer friends in the neighborhood. Instead of being excited about someplace new, they're excited to improve their home.
"We're happy to stay put," Resop says.