Property posts to return soon but your friendly blogger has been on the road.
In the meantime, some food for thought ... I was searching for some behavioral finance articles and came across this blog from the Huffington Post discussing loss aversion and its relationship to the housing market. The post is from August if 2008, so somewhat dated, and of course we have the benefit of hindsight. Political leanings of the content provider aside, I was struck by the "real estate executive's" comments:
"Some areas of the country have such limited demand right now that there is no point to sellers lowering prices. By doing so, they communicate to the buyer community that prices are dropping which in turn reinforces buyer's beliefs that prices will continue to drop. Until there is some acknowledgement among the media or the buyer community that prices have hit bottom, there is no point to a seller dropping his or her asking price."
I am a fan of behavioral finance and do believe that psychology has a lot to do with how people react as it relates to gaining/losing money, but this circular argument just doesn't pass the smell test. So, if sellers get together and decide to not drop their prices, then they've created an artificial bottom? And where's the "limited demand?". Again, the article's from 9 months ago and maybe the writing wasn't as clearly on the wall.
At some point, you just can't fight the power of supply and demand, particularly when the demand is constrained by tighter lending limits, reduced wealth and lower income.
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3 comments:
Where to begin...this quotation from the article stood out to me:
"In fact if all sellers in a market who did not have to sell kept their asking prices firm, perhaps the housing crisis would start to end. In other words, once buyers start to believe that the free fall is over, they will start to buy and then the free fall will in fact be over"
Huh? Doesn't this presuppose that current prices, in WeHo and elsewhere, are fair, despite the fact that they're completely out of whack with any historic metric, be it rent-to-sales price or median income? Despite the fact that, as you so succinctly put in your WeHo News piece, there are no longer any realistically priced starter homes here? Even though prices got so out of hand that people made tragic financial decisions in order to get into an owned home at any price?
I just hope it's become clear...or certainly will by the end of the Spring "selling season", that what buyers are holding out for are REALISTIC (i.e., much lower) prices, not the return of the "house as get rich quick scheme" implied by what was going on between 2001-2007.
I guess if people stay in their echo chambers long enough they end up believing ANYTHING.
Nobody ever HAS to buy a house. Not ever. But people do actually HAVE to sell sometimes. And that, right there, tells you who ultimately has the whip hand.
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