People will debate the reasons why buying has slowed. In a recent article, Logan Mohtashami states that he believes homes are at the price point now where most average people can’t afford them. they just can’t make the numbers work. And interestingly, he doesn’t blame tight lending standards (which is what is claimed HERE, HERE, and HERE (links):
So does this mean the housing market will come crashing down? Not really, even a bear like me knows that millions of Americans, Hedge Funds, and foreigners will still buy homes. Even I have SAARS running at 5.25 -5.45 million next year which is really a flat year. However, this is based on 30% plus cash buyers and mortgage rates not going anywhere near 6%. Simply put, the U.S. housing market can’t handle fewer cash buyers concurrent with higher mortgage rates because as always, we don’t have enough qualified home buyers. But, in case my point has not been made the third fourth and fifth times, let me make it once more; the reason we don’t have enough qualified buyers is because incomes and liquid assets are light and not due to tight lending standards.
For a different perspective, I emailed my friend and super mortgage broker Steve Mix. Here’s what Steve had to say in his concise manner:
I would say the biggest reason for that in greater Boston area is that there is not enough inventory. I’ve got a stable of buyers out there looking with no properties to purchase. My humble opinion is that a lack of consumer confidence is still causing people to hold off on move ups (capes to colonials for example). Until that segment jumps in the inventory constraints are going to keep the number of transactions down.
Hearing similar sentiment from both realtors and other lenders.
So Steve says there are people with money, which Mohtashami doesn’t doubt, but Steve thinks a little confidence boost at the middle of the market will open up more starter homes for those below.
I have often stated that the people in the middle are the ones most stuck with negative equity. It’s likely they’re just starting to emerge from that and may move; but I had felt that over the past few years we’d get very little movement from that segment. There are plenty of people looking for starter condos, and the Fed has helped increase the number of wealthy folks capable of buying mansions. But those in the middle had been locked in since 2007. In 2014, let’s see if they do in fact “emerge.”
Personally on a related note, I wonder how it all looks with 8% mortgages. I wonder if the Fed will try to make sure that we never see 8% mortgages again. I wonder if they have the actual final say on that “decision.”
