Ah the glorious Home Buyer Tax Credit. Consumers lust for it, and NAR spent a fortune getting it extended. Realtors are indeed finding it a valuable incentive for business this year.
40 Largets Metros, by price quartile. Days on Market and Absorption Rate. 90-day Rolling Average, single family homes. (Click for full image)
And housing stimulus goes beyond the tax credit too, the feds are pumping money into mortgages, keeping rates on conforming loans ridiculously low.
But Uncle Sam doesn’t do jumbos. And while eight grand makes a big impact on a $150,000 home. For a $750,000 home, not so much. Besides, if I can’t get a jumbo loan, who’s going to use it anyway? So all the money is aimed at the entry points in the market.
All sounds good, I suppose. But is it working? Maybe too well. In city after city, housing demand is active at the entry level and dry everywhere else.
Check it out. This chart shows the 40 largest metro markets in the US, each divided into four price range quartiles. We looked at the Days on Market and Absorption Rate for each. (note: the absorbed stat is measured as of last Friday and is not exactly a count of everything “sold”, closings take a while, contracts fall through. The actual sold won’t be known for a few months, so this number is close enough.) Red is bad relative to the whole country. Green is good. Click through to get the full chart.
Notice that in almost every single metro housing demand, as indicated by higher absorption rates and lower time on market, is significantly more active in the bottom price quartile (4) and gets weaker as you climb the price range.
As a result of all these goodies, the US Housing market is now like the retailer with a predictable clearance-sale schedule. No one wants to buy at regular prices. I can wait till Boxing Day.
More reading on the tax credit and how Realtors should get it while it’s hot.
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Exactly. Once again, your very detailed data comports with my more generalist take on the situation, which I compose from myriad, cobbled-together sources. Well done.
G
Mike,
Isn’t it true that the disparity between lower end homes and upper end was present even before the tax credit? I don’t disagree that the impact has been there in the lower end, and that the government prodding has been mostly unfelt in the jumbo market, but I think the real key to this is the spread between conventional rates and jumbos, coupled with a some underlying demographic and psychological trends.
I believe that the higher end buyer has seen more of their net worth evaporate in the past 2 years, and has pulled a bit further into their shell as a result. By contrast, the entry buyer didn’t have as much (anything?) to lose in the stock market and real estate devaluation. This, therefore, is their opportunity to get into the market, to make good in a realm that only the fat cats could hope to make good in a few years ago.
I also see some buyers who once would have stretched for a primo vacation home instead dropping back to a lower end offering, taking advantage of increased price adjustment in the lower end of the market (our lakefront sellers by and large “don’t have to sell”) and buying an opportunity to own a getaway up north for a fraction of what they expected to spend a few years ago.
As I think you know, I’ve got a pretty unique market out here in the hinterlands of Northwest Michigan. A state with a soaring unemployment rate juxtaposed with a region of immense natural beauty and a quality of life that proves attractive across generational boundaries. I don’t think your analysis is off base, but as always, there are nuances that flavor any such discussion.
Matt – I don’t think that’s necessarily true at all. For most of 2008, up until Lehman burst in September, in many markets the activity was purely at the high-end. That’s because the people who had financing were at the high end.
The Bay Area is prime example. Where the entry level markets broke in the spring of 07 with sub-prime, the high-end markets didn’t seize up until Wall Street did late last year. Then the stimulus kicked in and after two years getting pummeled, the entry-level segments finally resumed. And here we are.
Guys:
Prices have fallen at the lower end, but not at the higher end.
In better parts of the bay area, like palo alto, you see lower prices at the very top end, but “entry level” ($1M-$1.5M) is as high as it was in the bubble years.
But in East Bay, you’ve seen huge price declines.
Mike,
Are you of the opinion then that the biggest reason for the gap between low end and upper end activity is the tax credit?
Low end has been strong for last 18 months here, mostly because some of the buys were absolutely INSANE and adjustment was much slower in the higher end. We were still pretty dry in high end through summer, but those properties that came on at market did see activity.
Doesn’t it stand to reason that some of the lower end activity will work up through the ranks, as inventory shrinks and first timers buy occupied homes, creating move up buyers? I think that the overriding economic pressure will continue to weigh down the higher end, with (hopefully) people making more prudent, conservative purchases, but doesn’t absorption in one segment affect others?
Insert your favorite variation of “all real estate is local” here.
Matt – I see both those factors. Two years of aggressive price declines + massive incentives = buying opportunity.
Will the demand work its way up the food chain? To some extent it has already. But pretty quickly you remove the incentives part of the equation and that’s what we see in the numbers where the demand stays low end. I suppose the big question is not whether Frankenstein’s monster sits up with 1.21gigawatts pumped in, it’s whether he walks when the power is off.
Zanon – you’re right in that the lower-end East Bay got pummeled harder. But that’s a lagging view of what’s actually happening – and the point of this story. Price declines started 3 years ago, and bottomed early this year as the incentives (and Matt’s bargains) kicked in. This year, the demand has shifted. Prices have started to reflect that a bit.
for example: http://bit.ly/7zkPHl
“I suppose the big question is not whether Frankenstein’s monster sits up with 1.21gigawatts pumped in, it’s whether he walks when the power is off.”
Love it Mike. Well said.
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