Mobility in housing may have slowed down and may continue for some time to come.

At the higher end of the market and in some areas, there has been more activity in sales, which may be due to appreciation in the stock market and increases in income for higher earners. But, first-time home buyers are not finding it easy to purchase homes because inventory is low, especially at the lower end of the market. Existing homeowners are not selling and buying upwards because they may have negative or low equity in their homes. They may have bought at the height of the market in 2006-07 and their debt-to-value ratio may be either negative (they owe more than what the home can be sold for), or may be insufficient for them to cash in and purchase a more expensive home.

The lack of housing mobility may be due to a number of events resulting from the financial crisis of 2008. In early 2009, the US Government undertook a number of initiatives meant to help homeowners, such as the Home Affordability Refinance Program (HARP), and the Home Affordability Modification Program (HAMP). The effect of these programs (although limited to about half of outstanding mortgages at that time) was to help homeowners keep their properties by reducing mortgage payments to levels that they could afford. HARP went even further and allowed some homeowners to refinance at very low rates, even when they were not in danger of losing their homes, or likely to fall behind in their mortgage payments *. Their new lower payments make it difficult or unappealing for them to sell their existing homes and purchase another one. They may have sufficient equity to sell, but the amount of net cash they receive for their home may not be enough for them to purchase a bigger, or more conveniently located home, because they don’t qualify for a mortgage on the purchase.

When these actions were taken by different sources, political, private and judicial, after 2008, the outcome of this slowdown in upper mobility could have been predicted. It was easy to foresee that the combination of lower mortgage payments, the slowdown in the foreclosure process required by new laws and regulations, the judicial intervention in curtailing lender abuse and incompetence **, would all contribute to prevent a precipitous downfall in prices. A lot of homeowners who were underwater (owed more on their properties than what the properties were worth), could have given up and stop making mortgage payments, causing a domino effect in the reduction of prices. The endgame of these actions, even if not planned in unison, resulted in market prices leveling off, thus buying time for an improved economy to bring prices to higher levels.

By keeping mortgage payments affordable and avoiding an avalanche of foreclosed properties hitting the market in droves, the inventory of properties for sale has shrunk. This may be the major reason for the sustainability of prices.

What was not foreseen by the “experts,” or at least not discussed in public, was the stagnation in housing sales. Much more difficult to predict is the impact of these actions on population shifts and upper mobility, as it is uneconomical for homeowners to sell and buy.

* Homeowners refinancing under HARP were able to turn 30 year into 15 year mortgages with the same amount of monthly payment. Some of these homeowners may already be reaching the half point of the 15 years, thus increasing equity in the property. Some may have refinanced at rates so low that they are paying much less for square footage than if they were to rent comparable space.

** The judiciary in different states put the brakes on the foreclosure process due to mistakes made by the lenders, incompetence in the handling of the foreclosure actions, illegalities with the paperwork supporting the mortgages underlying the foreclosures, and miscellaneous other reasons. Laws were also enacted in most states aiming to protect homeowners, but resulting in a huge slowdown of the process. By the way, lenders were not completely unhappy about these actions, even if they publicly opposed them. In some states lenders have taken so long to foreclose their mortgages that they may be coming up against statute of limitations that make their mortgages invalid, thus creating the possibility that the homeowners may keep their properties free of the unpaid mortgages.