I put together these sales ratios the other day. (Sales Ratios Explained) What I found striking was the lack of sales activity over $350,000. With interest rates around 4 PERCENT and great inventory to choose from, what causes this? I will tell you a theory my brother Matt just shared with me. Matt says buyers of homes over $350,000 tend to be homeowners already; they are not first time buyers, as a rule. So these buyers have a house to sell. With values down, they may be in a low or negative equity situation. In any case, coming up with a down payment could be a trick, as most people use the equity they once had. Most are NOT sitting on a pile of cash, especially in this economy. Also, it is possible these people are of an age where they follow the news more closely. They see volitility in the stock market and absorb a lot of the negativity that makes news.
What will turn this around? Great question. Good economic news will help. As people gain confidence, some of them will enter the market. One good piece of news is that savings is up and many consumers have gotten a handle on revolving debt. Savings may also prove to be a solution in another way–providing buyers with a down payment.