In yesterday's Home & Garden section, the Richmond Times-Dispatch published its monthly Top Ten List of the most expensive residential real estate transactions for the month of January. The most expensive home sold for $1.65M, followed by a home that sold for $1.4M. After Nos. 1 and 2 there is a pretty steep price drop-off in price, almost $300,000, to sales Nos. 3 and 4 at $1.15M and $1.015M, respectively. But then the next highest priced home sales, Nos. 5 through 10, clock in at $800,000-$650,000.
Let me just say for the record that I think ALL of these prices are lots and lots of money. And I am unlikely to be able to buy anything in any of these price ranges unless and until (i) my rich uncle gets out of the poor house; (ii) I win the lottery; or (iii) the real estate market comes back with a vengeance. [NOTE: As to No. (iii), I think it's more likely that I win the lottery, or discover a long-lost unknown and very wealthy relative who decides to leave me his or her fortune]. So please do not take the following analysis and opinion to be implying in any way that a $650,000 home is inexpensive.
BUT....that being said, it used to be that the least expensive of the Top 10 real estate transactions each month would be $875,000+. So what does the change mean?
I have a couple of theories. First, with two transactions well above $1M, at $1.65M and $1.4M, I think you can conclude there are still some people doing extremely well. With economic stability and financial resources, some folks can take advantage of "low" (relatively speaking) prices and low interest rates to buy move-up houses.
Second, with two sales in the $1M range, there are still people doing very well, well enough to move up into an expensive home. Again, these people have the opportunity to take advantage of low prices and historically low interest rates.
BUT, the drop off in sales price to $800,000-$650,000 for the last five highest priced January 2010 transactions is concerning. Why? I think it's an indication of weakness in the "move-up" housing market. If someone buys a $650,000 house, they are likely to have sold a $400,000+ house. That buyer of the $400,000+ home may have sold a $250,000 home. And that $250,000 home might have been purchased by a first time buyer. The higher priced sales are evidence of sales velocity at the lower end of the market. It's evidence of the "trade up" effect in the residential real estate market.
We are in the "perfect storm" environment for buyers, with low prices, low interest rates, a larger-than-average inventory of homes to choose from, and consequently more buyer leverage to extract favorable terms. We are unlikely to see better conditions for buyers in our lifetime. But it doesn't seem that many buyers are choosing to move up. And those that are, well, the price ranges of move-up homes are lower than we have typically seen for the highest priced homes. That indicates to me some stagnation in the middle ranges of the housing market. Extremely high priced homes, a fairly small segment of the market in any economy, are still selling. All the sales data indicates the lower end of the market, the first time buyer range, which runs up to about $250,000 depending on area, is moving well. But the middle of the market doesn't seem to be moving much at all.
Why should anyone care? Residential home sales drive economic activity across the broader market as people shop for furniture, hire moving companies, hire contractors, do home improvement projects, etc. Stagnation in the middle of the residential real estate market means less activity in the broader economy. I think people have decided to be more conservative, to either stay put, or downsize, or buy a smaller, more modest replacement home than they would have in the past. Some people may decide not to buy AT ALL, and are renting or moving in with relatives or friends. That was not something we saw in the go-go days of the real estate rush, when everything was "bigger, faster, larger, MORE!"
The verdict? I hope I'm wrong, but I think there are tough roads ahead until unemployment - and underemployment - figures start to come down substantially. Fasten your seat belts, people, it's going to be a bumpy ride.
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