Slow Housing Activity

Traditionally, February is the slowest month for house purchases.  I am not sure if it is the lull after the holiday season or the anticipation for the spring buying season, but there are never a lot of transactions during this month.  This year is certainly no exception to that trend. However, what has changed is the nature of the buyer.   The housing market as it exists right now is basically limited to first time homebuyers and those “movers up” purchasing low-to-mid end homes (for purposes of NY metropolitan area I am referring to those with prices up to $700,000 or so).

With respect to first-time homebuyers, their motivations are pretty clear.  These buyers consist of (i) young professionals (i.e 25-30 years old) looking for their first place after college/grad school; (ii) married couples without children (who are mostly buying condos/coops/townhouses)and (iii) couples with young children buying the “starter house.”

The “mover-uppers” are those that have out-grown their first home usually as the result of children.   Many of these people are trading in 1BR or 2BR apartments for a house or a small house for a slightly larger one.  However, the price point for these buyers is usually in the $400k-$700k range.

The bad news here is that no other houses are selling.   The market for homes over $700k (and, especially in the “sweet spot” of $700k-$1.2m) is almost non-existent.   The owners of these homes are not selling and moving on to either smaller homes (for those retiring) or larger homes (for those expanding) due to the economy.  Many of these younger homeowners are highly leveraged and cannot sell their homes since they will either owe money on the mortgage or not realize enough equity to purchasing a new home.  Others, like the near-retirement and retirement crowd are not willing to lower the prices enough to reflect the current market prices of their homes.  Since they have no urgent need to sell, they are not and this is causing a near-halt to the upper end of the housing market.

As a result of the above, the housing market has not yet began to recover.   As the spring thaw in housing occurs in early March, we will see if housing prices will stop falling and stabilize.  But, this alone will not stimulate the market if people are unwilling to realize either smaller “gains” or “losses” which are necessary to allow the market to function normally.  Unfortunately, though people consider a house an investment when it goes up (and are willing to take these gains), they do not do the same when it goes down.  Homeowners become emotional about the house value, unrealistic about the current market conditions and unwilling to make rational moves based on the changed paradigm.  Until this changes or the employment figures turn strongly positive (neither which I expect to occur that quickly), I fear we will continue to be “stuck in the mud” on real estate sales and values.