The forgotten middle - why transactions are down in the real estate market.

Real Estate Agent · Falls Church · Member since 2012 · 2k+ posts · 1k+ votes

Transactions are down and there is a reason that many people did not see early on. One prominent YouTube (ask @Dion McNeeley) personality saw this and I noticed it months later in my home market of Lynchburg Virginia. The middle of the market is gone. How does this reverberate throughout the market? It limits the ability of qualified buyers to buy on the front end and it will decrease the price of higher-end homes on the back end. With sub 4% and 3% interest rates, this middle is simply just sitting there and waiting for time to pass or another life event to occur before they are nudged to move to another home. Until that time, we will see two separate markets one for first-time/ entry-level homes and one for all the others. In economics, some supply-siders talk about trickle-down economics. In the housing market, it is always trickle-up. Someone buys a starter home for their budget, then moves up every 5-7 years until they begin to move back down. Now the middle of this market is forgotten. You only buy one entry-level home and one retirement home, generally. But in the middle, there are several transactions that are now forgotten! This forgotten middle is the cause of the new, slower transactional market. But... what is the cause of this?

Be kind on my image, it is from a video explaining the market on YouTube.

Does the Fed have a hand in this?

Someone recently said the Fed broke housing and it seems accurate as the trickle-up and trickle-down has halted. Those in large homes without kids living with them cannot sell because a smaller home will cost more (this is my sister's situation in Richmond). Those trying to get on the property ladder (not really investors, but people simply looking for a primary residence) are priced out of the market by continual demand increases (demand increases daily, supply does not in this section of the market continuum). How long will this run its course? If I knew that, I would be interviewing on CNBC and with Marketwatch. Since I don’t, I am just like you taking in little bits of information on a dynamic market to make better choices every day.

So you’re saying move up buyers have dropped out of the market?

0 Reply

Brandon Wagner

Real Estate Agent · Northern Virginia · Member since 2021 · 106 posts · 50 votes

3y

I am seeing similar trends in my Northern Virginia market as well. First time home buyer, homes (condo's and townhouses) are still appreciating greatly. Larger 4+ Bedroom Single family homes are not. Those move up buyers just aren't selling, unless they really have to.

Only slight criticism is that most people in the downsizing camp should have lots of equity in their home from paying it off over the years, and all of the appreciation of the last decade. They should be able to sell there house and buy a smaller one essentially in all cash, or with a very small loan that the interest rates don't matter as much. There are of course some that have purchased their home in the last couple years where it doesn't make sense to sell but I'd consider that a small percentage overall.

0 Reply

Chris Webb

OP

Investor · Central Virginia · Member since 2020 · 394 posts · 253 votes

3y

@Brandon L. yes, rather than buying up they are staying put, generally. This happened in the 70s and 80s, it could take some time for life events to happen and the overall psyche of the buyers to accept higher rates.

0 Reply

Chris Webb

OP

Investor · Central Virginia · Member since 2020 · 394 posts · 253 votes

3y

@Brandon Wagner people in the downsizing camp could also take out HELOCs as well if they want to use the equity. I do think these people do have other exogenous factors. They cannot control the work relocation patterns of family and this could lead to sales. I know a family from New York who has two children here in Lynchburg for school and they are trying to sell their home up North and relocate here. Thanks for the comment!

1 Reply

Laura Tokgozoglu

Member since 2023 · 2 posts · 2 votes

3y

We are moving from Maryland to Lynchburg...but only because of a life event, my husband is retiring and our daughter and granddaughter are in Lynchburg. We are selling our 4br/2 ba 3500 sf house and moving into a 1400 sf house( Lakefront house, on Timberlake, we are trading space for location)We are trading in a 2.99 % for a 7.99% rate ( on a Bridge Loan) We got a bridge loan as we are buying the lake house now( they rarely come up for sale and we jumped on this when we saw it, a lifelong dream of living waterfront miraculously fulfulled!) We had been planning to sell next spring but finding the lake house pushed things up. We are hoping to use the equity in the sale of our house, hoping to get about 150k to 200k and then raiding our retirement savings once he retires to pay the whole thing off. It does not make any sense for us to carry a 7.99% loan...it would cost us 30k in interest alon per year. That is double our interest now. We could never have bought this house if we had to pay that kind of interest. My realtor says houses like ours here are selling in 2 weeks with multiple offers...we are hoping to get 700K or thereabouts. We are looking forward to a slower pace of life on the lake!

1 Reply

Ika Sargeant

Real Estate Agent · Reston, VA · Member since 2017 · 296 posts · 163 votes

3y

@Chris Webb what @laura Tokgozoglu is saying a perfect example of what is taking place. Most people who sell are forced by life events. Its the cost of selling, rising prices on the buy side, lack of inventory, high interest rates, competition. I have looked at this for myself, moving locally- a no go idea. It helps when you decide to move to a low cost area from a high cost area. We need the supply side to improve.

1 Reply

Chris Webb

OP

Investor · Central Virginia · Member since 2020 · 394 posts · 253 votes

3y

@Ika Sargeant I completely agree about supply. However, this will probably not happen as helping "rich" suppliers does not make political sense. Rather, they will provide demand boosts through down payment assistance or second loan options. This will raise prices... again!

0 Reply

Carlos Ptriawan

Member since 2019 · 7k+ posts · 4k+ votes

3y

Quote from @Brandon L.:

Quote from @Chris Webb:

Transactions are down and there is a reason that many people did not see early on. One prominent YouTube (ask @Dion McNeeley) personality saw this and I noticed it months later in my home market of Lynchburg Virginia. The middle of the market is gone. How does this reverberate throughout the market? It limits the ability of qualified buyers to buy on the front end and it will decrease the price of higher-end homes on the back end. With sub 4% and 3% interest rates, this middle is simply just sitting there and waiting for time to pass or another life event to occur before they are nudged to move to another home. Until that time, we will see two separate markets one for first-time/ entry-level homes and one for all the others. In economics, some supply-siders talk about trickle-down economics. In the housing market, it is always trickle-up. Someone buys a starter home for their budget, then moves up every 5-7 years until they begin to move back down. Now the middle of this market is forgotten. You only buy one entry-level home and one retirement home, generally. But in the middle, there are several transactions that are now forgotten! This forgotten middle is the cause of the new, slower transactional market. But... what is the cause of this?

Be kind on my image, it is from a video explaining the market on YouTube.

Does the Fed have a hand in this?

Someone recently said the Fed broke housing and it seems accurate as the trickle-up and trickle-down has halted. Those in large homes without kids living with them cannot sell because a smaller home will cost more (this is my sister's situation in Richmond). Those trying to get on the property ladder (not really investors, but people simply looking for a primary residence) are priced out of the market by continual demand increases (demand increases daily, supply does not in this section of the market continuum). How long will this run its course? If I knew that, I would be interviewing on CNBC and with Marketwatch. Since I don’t, I am just like you taking in little bits of information on a dynamic market to make better choices every day.

So you’re saying move up buyers have dropped out of the market?

This is very true, when ratio between income is moving up from 1:2 to 1:4 ; basically the guy that can buy higher price home is actually only us that purchased in 1980,1990s, 2000 and 2010.

It's generational issue like you described above. It's very tangible here in CA.

0 Reply

Carlos Ptriawan

Member since 2019 · 7k+ posts · 4k+ votes

3y

Quote from @Chris Webb:

Transactions are down and there is a reason that many people did not see early on. One prominent YouTube (ask @Dion McNeeley) personality saw this and I noticed it months later in my home market of Lynchburg Virginia. The middle of the market is gone. How does this reverberate throughout the market? It limits the ability of qualified buyers to buy on the front end and it will decrease the price of higher-end homes on the back end. With sub 4% and 3% interest rates, this middle is simply just sitting there and waiting for time to pass or another life event to occur before they are nudged to move to another home. Until that time, we will see two separate markets one for first-time/ entry-level homes and one for all the others. In economics, some supply-siders talk about trickle-down economics. In the housing market, it is always trickle-up. Someone buys a starter home for their budget, then moves up every 5-7 years until they begin to move back down. Now the middle of this market is forgotten. You only buy one entry-level home and one retirement home, generally. But in the middle, there are several transactions that are now forgotten! This forgotten middle is the cause of the new, slower transactional market. But... what is the cause of this?

Be kind on my image, it is from a video explaining the market on YouTube.

Does the Fed have a hand in this?

Someone recently said the Fed broke housing and it seems accurate as the trickle-up and trickle-down has halted. Those in large homes without kids living with them cannot sell because a smaller home will cost more (this is my sister's situation in Richmond). Those trying to get on the property ladder (not really investors, but people simply looking for a primary residence) are priced out of the market by continual demand increases (demand increases daily, supply does not in this section of the market continuum). How long will this run its course? If I knew that, I would be interviewing on CNBC and with Marketwatch. Since I don’t, I am just like you taking in little bits of information on a dynamic market to make better choices every day.

There's secondary trend also that mimic like you said, most happened due to baby boomer generation, they keep moving up house but then when retirement age is near, they purchased outside the area, so lets say they purchase SF in Daly City,CA twenty years ago for 300k , now they sell their house for 1.5M ; when they have no job or near retirement, they move to Sacramento where home price is still 400k-500k. Purchase by cost or low LTV financing.

It's true there's no middle conundrum.

Also the answer for FTHB is that, they usually husband and wife that has good w2 job, they're the one that can purchase entry level condo at this time. But if people don't picky, a single family man can still purchase much entry level condo with additional 45-60 mins driving routine.

For me personally, the best route that I took (before I'm being priced out) is to buy large house and househack.

1 Reply

Carlos Ptriawan

Member since 2019 · 7k+ posts · 4k+ votes

3y

Quote from @Chris Webb:

@Brandon Wagner people in the downsizing camp could also take out HELOCs as well if they want to use the equity. I do think these people do have other exogenous factors. They cannot control the work relocation patterns of family and this could lead to sales. I know a family from New York who has two children here in Lynchburg for school and they are trying to sell their home up North and relocate here. Thanks for the comment!

Right, I use to think HELOC or downsizing is better way but I found better solution: upsizing to cheaper area , then rent out primary so interest rate is no longer issue for us.

0 Reply

Chris Webb

OP

Investor · Central Virginia · Member since 2020 · 394 posts · 253 votes

3y

Quote from @Carlos Ptriawan:

Quote from @Chris Webb:

Transactions are down and there is a reason that many people did not see early on. One prominent YouTube (ask @Dion McNeeley) personality saw this and I noticed it months later in my home market of Lynchburg Virginia. The middle of the market is gone. How does this reverberate throughout the market? It limits the ability of qualified buyers to buy on the front end and it will decrease the price of higher-end homes on the back end. With sub 4% and 3% interest rates, this middle is simply just sitting there and waiting for time to pass or another life event to occur before they are nudged to move to another home. Until that time, we will see two separate markets one for first-time/ entry-level homes and one for all the others. In economics, some supply-siders talk about trickle-down economics. In the housing market, it is always trickle-up. Someone buys a starter home for their budget, then moves up every 5-7 years until they begin to move back down. Now the middle of this market is forgotten. You only buy one entry-level home and one retirement home, generally. But in the middle, there are several transactions that are now forgotten! This forgotten middle is the cause of the new, slower transactional market. But... what is the cause of this?

Be kind on my image, it is from a video explaining the market on YouTube.

Does the Fed have a hand in this?

Someone recently said the Fed broke housing and it seems accurate as the trickle-up and trickle-down has halted. Those in large homes without kids living with them cannot sell because a smaller home will cost more (this is my sister's situation in Richmond). Those trying to get on the property ladder (not really investors, but people simply looking for a primary residence) are priced out of the market by continual demand increases (demand increases daily, supply does not in this section of the market continuum). How long will this run its course? If I knew that, I would be interviewing on CNBC and with Marketwatch. Since I don’t, I am just like you taking in little bits of information on a dynamic market to make better choices every day.

There's secondary trend also that mimic like you said, most happened due to baby boomer generation, they keep moving up house but then when retirement age is near, they purchased outside the area, so lets say they purchase SF in Daly City,CA twenty years ago for 300k , now they sell their house for 1.5M ; when they have no job or near retirement, they move to Sacramento where home price is still 400k-500k. Purchase by cost or low LTV financing.

It's true there's no middle conundrum.

Also the answer for FTHB is that, they usually husband and wife that has good w2 job, they're the one that can purchase entry level condo at this time. But if people don't picky, a single family man can still purchase much entry level condo with additional 45-60 mins driving routine.

For me personally, the best route that I took (before I'm being priced out) is to buy large house and househack.

In this scenario, it actually helps the investor as they can find properties to flip and add to the inventory if they wanted. Any entry level home that is updated will fly off the market.

0 Reply

Mike Dymski

Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes

3y

What is the cause? There are 7 trillion causes... It was not forgotten, it was intentional...both the cause and the fix.

0 Reply

Chris Webb

OP

Investor · Central Virginia · Member since 2020 · 394 posts · 253 votes

3y

Quote from @Mike Dymski:

What is the cause? There are 7 trillion causes... It was not forgotten, it was intentional...both the cause and the fix.

It is forgotten by pundits - they forget that after the first sale, people move up and become both a buyer and a seller. The middle is not doing this. The market is losing two transactions that regulate price. So it is causing the first-time or entry-level home prices to increase because the supply is the same and the demand increases daily. It is also causing higher-end homes to sit since no one is moving off on the back end. As it states the Fed created this market and kept it running until it could not any longer due to inflation. Unfortunately, they will keep rates high to combat the rising prices forcing people to re-allocate their budgets for all goods. They will not fix this because it means helping "rich" builders. What they would rather do is help out "working class" people who need down payment assistance or a 40-year mortgage and this will only cause those entry-level homes to increase in value. If you can buy, do it soon because the market price might rise as these two programs "help" the housing market.

1 Reply

Carlos Ptriawan

Member since 2019 · 7k+ posts · 4k+ votes

3y

Quote from @Chris Webb:

Quote from @Mike Dymski:

What is the cause? There are 7 trillion causes... It was not forgotten, it was intentional...both the cause and the fix.

It is forgotten by pundits - they forget that after the first sale, people move up and become both a buyer and a seller. The middle is not doing this. The market is losing two transactions that regulate price. So it is causing the first-time or entry-level home prices to increase because the supply is the same and the demand increases daily. It is also causing higher-end homes to sit since no one is moving off on the back end. As it states the Fed created this market and kept it running until it could not any longer due to inflation. Unfortunately, they will keep rates high to combat the rising prices forcing people to re-allocate their budgets for all goods. They will not fix this because it means helping "rich" builders. What they would rather do is help out "working class" people who need down payment assistance or a 40-year mortgage and this will only cause those entry-level homes to increase in value. If you can buy, do it soon because the market price might rise as these two programs "help" the housing market.

Just want to say you are very smart.

So if we want to understand this fact is that, when we say inflation, in reality the number of money is increasing in circulation, and most of them always going to either stock or real estate, since real estate supply is stagnant, eventually price drives up.
The Fed may want to influence the reverse way by burning the money, they did burnt the money, but housing supply is even lower than number of gold in circulation where price can't be manipulated easily.

This is generational issue and nothing new.
The more inflation would be, the higher real estate price would be and the empty middle like you said.

Newbuilder come with solution, by making new house 500 sqft smaller than pre pandemic house.

Which means, older house is always better and bigger in term of money worthiness LOL

0 Reply

Mike Dymski

Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes

3y

Quote from @Chris Webb:

Quote from @Mike Dymski:

What is the cause? There are 7 trillion causes... It was not forgotten, it was intentional...both the cause and the fix.

It is forgotten by pundits - they forget that after the first sale, people move up and become both a buyer and a seller. The middle is not doing this. The market is losing two transactions that regulate price. So it is causing the first-time or entry-level home prices to increase because the supply is the same and the demand increases daily. It is also causing higher-end homes to sit since no one is moving off on the back end. As it states the Fed created this market and kept it running until it could not any longer due to inflation. Unfortunately, they will keep rates high to combat the rising prices forcing people to re-allocate their budgets for all goods. They will not fix this because it means helping "rich" builders. What they would rather do is help out "working class" people who need down payment assistance or a 40-year mortgage and this will only cause those entry-level homes to increase in value. If you can buy, do it soon because the market price might rise as these two programs "help" the housing market.

You and I are talking about two different things. The government pumped $7 trillion into the money supply (intentionally) and now is trying to vacuum it back up with a blunt sledge hammer (intentionally). That's the cause...and their fix.

1 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

3y

Quote from @Brandon Wagner:

I am seeing similar trends in my Northern Virginia market as well. First time home buyer, homes (condo's and townhouses) are still appreciating greatly. Larger 4+ Bedroom Single family homes are not. Those move up buyers just aren't selling, unless they really have to.

Only slight criticism is that most people in the downsizing camp should have lots of equity in their home from paying it off over the years, and all of the appreciation of the last decade. They should be able to sell there house and buy a smaller one essentially in all cash, or with a very small loan that the interest rates don't matter as much. There are of course some that have purchased their home in the last couple years where it doesn't make sense to sell but I'd consider that a small percentage overall.

this is what I am experincing in my new home project in the Portland Or MSA price points 675k to 900k which is the middle.. but for this burg its the top.. 8 out of the last 10 sales I made this spring / summer were for cash or darn near all cash what is gone is the move up family with kiddos. At least for us. However we are selling very well and darn appreciative that its going this well.

Podcast Guest on Show #222

JLH Capital Partners51 Review

Website View Page

1 Reply

Chris Webb

OP

Investor · Central Virginia · Member since 2020 · 394 posts · 253 votes

3y

Quote from @Mike Dymski:

Quote from @Chris Webb:

Quote from @Mike Dymski:

What is the cause? There are 7 trillion causes... It was not forgotten, it was intentional...both the cause and the fix.

It is forgotten by pundits - they forget that after the first sale, people move up and become both a buyer and a seller. The middle is not doing this. The market is losing two transactions that regulate price. So it is causing the first-time or entry-level home prices to increase because the supply is the same and the demand increases daily. It is also causing higher-end homes to sit since no one is moving off on the back end. As it states the Fed created this market and kept it running until it could not any longer due to inflation. Unfortunately, they will keep rates high to combat the rising prices forcing people to re-allocate their budgets for all goods. They will not fix this because it means helping "rich" builders. What they would rather do is help out "working class" people who need down payment assistance or a 40-year mortgage and this will only cause those entry-level homes to increase in value. If you can buy, do it soon because the market price might rise as these two programs "help" the housing market.

You and I are talking about two different things. The government pumped $7 trillion into the money supply (intentionally) and now is trying to vacuum it back up with a blunt sledge hammer (intentionally). That's the cause...and their fix.

Oh, I see. Not many investors invest based on the money supply, they look at market conditions. The middle of the market is not moving. There is a fix, but unfortunately, the politicians will not allow for the fixes to play out.

0 Reply

The forgotten middle - why transactions are down in the real estate market.

The forgotten middle - why transactions are down in the real estate market.

Most Popular Reply

17 Replies