A reader has sent me a very thoughtful letter about Greenwich real estate prices and our expectations, which I will post below. Before I do, I thought it would be useful to post some statistics compiled by Shore & Country Real Estate, culled from SearchGreenwich.net, a private service that mines our MLS data. These don’t reflect non MLS sales but they do capture about 95% of the market.
I’m hopeful that clicking on the image will enlarge it. But here’s the scoop:
1999: average price, $1,330,518; median: $861,125
2003: average price, $1,757,020; median: $1,175,000
2005: average price, $2,470,118; median: $1,750,000
2007: average price, $2,973,201; median: $2,100,000
First 9 months of 2008: average price $2,824,166 (-4%), median: $1,962,800 (-7%). The last quarter will show a larger decline, but so few sales that it may not be useful.
So where are we headed: 2005, 2003, 1999? Jury’s still out, I think. Now to my reader’s letter:
I am of the opinion (and have been for some time) that the news coverage of economic events will start to improve on Wednesday of next week. Yes, I believe that the media that helped elect Mr. Obama has a huge vested interest in his performance, particularly in first 100 days. Thus, I think we will begin to see some modestly more positive coverage and spin on statistics than we have seen over the past eight years. The item linked below is just one example of the media piling on the negativity. Perception sometimes become reality but if you can move the perception a bit more toward the positive, the reality may follow on as well.
As much as you may not want to see it, I think your blog runs the risk of doing similar things to Greenwich RE. No, I am not saying you are a god nor that you are making potential homeowners list their homes at unrealistic prices. However, in a market that has been hurt economically and is experiencing a very serious “buyers’ strike”, focusing on the misguided home sellers only makes potential buyers think that they would be chumps to come into the market. Or, if they are ready to buy, that they come to any home thinking that any price that is not down 40%+ from the original asking price is mispriced. However, when there are no transactions, there is no price discovery, so sellers can only work with anecdotal evidence provided by presumed experts, etc. In case you don’t realize, you are one of those experts (real) and your commenters, irrespective of knowledge or seriousness, gain a sense of legitimacy by commenting on your site.
As in other markets, feedback loops are created and, with no information or transactions to the contrary, a consensus can build and the loop can begin to feed upon itself. It happens in the financial markets all the time, both on the way up as well as on the way down. Thus, markets get overbought and oversold with regularity when the market starts really moving. As we have seen, this happened in real estate and risk assets over the past decade (on the way up) and is now operative on the way down.
I am not blaming you and I am not suggesting that your observations about the market receding to levels of a number of years ago are neither correct nor misguided. However, have you noticed that you are starting to draw commenters who seem to subscribe to the Rubini/Schiff/Faber/Whitney world view and wish doom upon the world. Several comments lately (mostly anonymous or with silly names) have not only been downbeat, but I would characterize them as mean as they seem to relish the collapse of the Greenwich RE market. I have seen this before and it usually starts on blogs when an entry is linked on another popular site and draws new viewers (as you have of late). These permanently negative basement dwellers see an opportunity to be heard and become regular visitors/commenters. I see them all the time on other blogs like Clusterstock, Dealbreaker and others and, when they become regular visitors, they can really skew a site’s view to the perpetually negative. Le cages aux folles, even vultures.
No, I am not suggesting that the messenger should be shot for delivering bad news or pointing out inconvenient or uncomfortable facts. However, without transactions, current musings about the floor are simply conjecture as a lack of buyers and realistic sellers prevents proper price discovery. Sure, one can drag out the home affordability index and point out how overbought real estate became and assume that reversion to the mean is necessary. However, that works mostly in liquid financial markets where the transactions costs are low, transaction speed is high and the participants don’t have to live in the traded good. It works for tulips but I am not sure it works for 4-bedroom colonials. That said, yes, I am a homeowner and I have a view, a bias and, maybe, delusions.
Finally, in my opinion, anyone wishing/hoping that Greenwich RE prices revert to mid-90’s levels is unlikely to be a current homeowner nor someone who really wants to live in the Greenwich that implies. That is, if you are hoping that the Grand List shrinks to 50% or less of its 2007 peak, you have not given much thought to the impact on the Town vis-à-vis its tax base and budget nor the impact on the quality of life, services and mil rate that such a compression implies. Yes, we all happily lived in Town in the mid-90s and never thought we were not blessed. However, the contraction such price levels suggests, along with a changed tax burden that has relied more heavily on commercial and office properties, would come very quickly rather compared to the 15 years that has brought us to this point. The deflation in services and/or increase in taxes will leave many of us shell-shocked which will then have an impact on housing turnover, etc. Another feedback loop of sorts.
Of course, it is your blog at the end of the day and you are entitled to write what you want, how you want and publish comments as you see fit. However, as a relatively long-time reader, I felt the need to share my observations with you.
Chris, feel free to post or quote this in part or whole or not at all. I would be interested in the comments it draws. However, be mindful of attribution to me specifically. Thanks.