My somewhat meandering thought process on this topic is that RE on the hole was driven by both first time buyer and move-up transactions. It was a speculating feeding frenzy chummed with cheap money and easy financing. Many buyers entered due to the new found access and not because they could afford the asset. Today, OE is decreasing due primarily to the correcting fundamentals (via secondary credit market seizure, foreclosures, jobless claims, etc.) that actually justify the risk of debt and debt service.
I agree that there are those (maybe many) with cash on the sidelines from previous home sales and/or those who will receive a gift of some sort. But it is my belief that unless you are able to engage the first time buyer, at whatever age, any given RE sub-market will have limited sustained movement. You need the grass roots transactions to make this whole thing work. You need the condo sale in Chula Vista. You need the 3/2 sale in Santee for Encinats to get back on track. You need the first time buyer.
There are posts on other threads here that have calculated the time it would take to save 20% for that first home buyer given the median household income. If I recall, it will take some time for even the most disciplined savers attempting to buy the median condo or SF. Most are not that disciplined. Throw in the recession and increasing jobless rates and you have some added barriers to achieving the cash-down thresholds.
For the near (and perhaps forever) future, the new conforming rates will do little to make a meaningful impact on transactions. Its a feel good story. Its an election year. There are those who are total quants and look unattached at the transaction. Then there is Raptor’s wife who won’t speak to him because he didn’t pull the trigger this weekend. It is difficult to balance prudence with emotions when buying a home.
Rich discussed an interest rate v RE demand correlation in a recent article that resonated with me and I think can be applied to this discussion. The reality is people were buying homes in the 80’s while agreeing to service debt at 12%. The difference then was that banks were lending based on flushing out the risk. Not only did you have to have good credit, you needed an income to satisfy the debt and 20% down. I don’t think people are sitting on the fence in droves waiting for a 100 basis point decrease in their prospective loan. There are some who are on the fence in this market. I just don’t think they are a meaningful number.
