Low To Middle Market Leading The Charge!
August 3rd, 2009 categories: For Buyers, For Sellers, The Market
Today’s Wall Street Journal laments that the upper end of the real estate market is still slow. The recent good news of increased sales and, in some cases, prices is taking place in the low to moderate price ranges of a given market. I get the sense that the WSJ crew sees this as a negative, however, after having been through a few of these slumps we are seeing the exact cycle that says to me we may be recovering. In the past, entry-level sales pick up, then this increase translates to the mid-level markets and the last to take off is the upper priced properties.
“Housing is fast dividing into two markets: Sales of low- and moderately priced homes are picking up and values have stopped falling in some parts of the nation. But on the upper end, sales remain mired in a deep slump and price declines are expected to accelerate.”
CLICK HERE TO READ THE WALL STREET JOURNAL ARTICLE
The following may explain this process.
1. Lower priced homes appeal to people who do not own, low interest rates and favorable prices inspire this non-owner group to buy. Once they buy, the person who sold to them is now in a position to buy again. What do they buy? Probably a more expensive home of someone in the middle range of the market, this seller then buys a home a step above the price of the home they just sold. You can see that sales have a tendency to “trickle up”; if this were the case then you would expect the more expensive home segment to be the last to begin an increase in sales.
2. I don’t know if Congress is this smart, but I will give them the benefit of the doubt. It seems they have targeted most of their incentives to the entry-level market ($8,000 1st time buyer credit, etc). In other words, follow the incentives and you will see where the market will begin to move first (so much for socialism and altruism).
3. The divide between conventional and jumbo financing. Even though it has become more difficult to obtain and qualify for conventional financing, I understand that it is geometrically more difficult to obtain a jumbo loan. Given this difficulty, you would expect homes within the conventional sweet spot to sell more easily. This is not theory, in fact, if you look at the Honolulu real estate market you will see that the recent increase in sales is closing tied to conventional loan amounts. Once jumbo lending guideline relax, we will see the upper end of the market begin to move again.
If you would like to discuss your real estate needs, feel free to call me at 808-737-2093 or toll free at 877-737-2093. You can email me at keahi@lava.net.
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