What seemed like the breakout year in real estate may turn into a hard act to follow. Although the National Association of Realtors® May 22nd news release made headline news by skillfully pointing out that April existing home sales increased 1.3% from March; April’s sales data were 6.8% lower than last April. Much like the assertion to “Keep Calm and Carry On,” the spin on data may bean attempt to motivate home buyers and sellers.
The Greater Capital Association of Realtors® home sale statistics were consistent with NAR’s, such that Montgomery County MD single family home sales decreased about 8.2% in April compared to the same time in 2013. Looking deeper, the numbers reveal a similar scenario that played out in 2011 when a bifurcated market emerged between upper bracket and middle to low bracket homes. Sales of upper bracket homes are doing very well this year, while moderate to lower bracket homes sales are decreasing compared to last year. And much like 2011 when luxury home sales hit record prices (when DC’s Evermay and Halcyon House sold); 2014 is also a year of record luxury home sales (LA’s Fleur-de-Lys sold for $102M, CT’s Copper Beech Farm sold for $120M, and a NY mansion sold for $147M; each sale successively breaking the record for most expensive residential US home during a 5 week duration!). Consistent with this theme: cash sales are increasing this year, while first time home buyers are decreasing.
While the housing market may be shaping up to be similar to that of 2011, the reasons for a similar profile are different. We were looking for the market bottom during 2011, as well as assimilating an unprecedented number of distressed properties. However, even though distressed sales are rapidly decreasing; 2014 was supposed to be an extension of last year’s increased sales activity.
What we may be experiencing is the flip side to the housing crisis, as described by Daren Blomquist, RealtyTrac Vice President in his May 19thblog post (Nearly One-Third of Americans Live in Counties Where One in Five Homeowners is Underwater: Heat Map; RealtyTrac.com). Blomquist characterized the lack of participation in today’s market as being from the unusually high number of home owners with high loan balances on their home, including the many whose mortgages are underwater. This lack of participation is much like the many homes taken out of the market because of the foreclosure crisis during the downturn. He stated that the “normal flow [of move-up buyers] is being disrupted by homeowners with negative equity who are holding back from becoming move-up buyers, which in turn is impacting the availability of inventory downstream for first-time homebuyers.” According to RealtyTrac, those who are “seriously underwater” (125% or higher of loan balance to home value) account for 11% of Montgomery County MD home owners, while the county average loan balance to home value is about 79%.
The idea of the inactive move-up buyer is not new. In fact it seems to be that move-up buyers were lacking after other deep recessions; the August 17, 1985 article published in the Chicago Tribune titled, “Move-up Buyer Provides The Base For A Recovering Housing Market” is a testimony for such behavior. The timing for the move-up buyer is likely correlated to the time necessary to either recover lost equity; or reach a comfort level for the net amount gained in their home sale.
By Dan Krell
Copyright © 2014
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