My Dinner with Andre
Lunch with three close friends, actually, two of whom are real estate lawyers I labored in the trenches with back in our last bad market in the early 1990s. Their take? Things are simply awful, and much worse than they were back then (of course, we were all younger then, and optimism was easier to come by). “It’s as though everything just froze overnight,” one said. “Nothing is happening.”

I asked how many high-end properties were purchased with high-end mortgages and they agreed that, while a lot of buyers in the past years simply took out the $1.1 million in mortgage money that is deductible, there were plenty of buyers who were stretching to the limit to get the house they wanted. These two lawyers, by the way, are involved in probably 25% or more of the real estate transactions in town, so their view is a good one. Their prediction, one I agree with, is that nothing significant will happen in the market until January. But then a lot of people who have been trying to hold out are going to give up and put their homes up for sale. When they do they’ll price them to sell which will finally break the logjam that now exists, with realistic buyers butting heads with steadfast sellers.

If this prediction bears out, existing sellers are going to have a lot of competition and those competitors will be setting a new, much lower level for pricing. And if that happens, you out there who have been refusing to come down to a price that will move your house are screwed – the market will just pass you by and go to the new, lower-priced inventory.

So what should you do? The sad news is, there probably isn’t much you can do. All four of us diners agreed that, today, almost no price cut seems capable of spurring a buyer into action. If someone is too nervous to buy, they aren’t going to, regardless of what bargain they perceive. Of course, no house in Greenwich is worthless and if you marked anything down to some hypothetical price you’d find a buyer. But where’s the happy ground between a ridiculously low price and one that will make economic sense to you and still move a buyer? It’s hard to tell. The two quick sales I discuss below are evidence that, at least in some cases, price does still matter. The growing inventory, much of which has seen price reductions, indicates that demand is still too weak to be affected by price cuts and certainly not by 5%-10% cuts. So price it way below where you might have priced it two years ago and be prepared to whack at it even harder in 30 days. Might work.

I do suggest, however, that if you’ve been clinging to a price that you know is too high you might want to adjust it now, before the January flood ensues. Will it help? God knows, but it can’t hurt.

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  1. Anonymous

    Chris– With all due respect, I think the nervous buyer angle is overstated. What you have now are cautious buyers. The careless buyers all jumped in during the boom. The people who are interested in buying today resisted buying during the boom because they did not see the value. They still are not seeing it now, but when price cuts get serious, they will come out. Look at what has happened in California: big price cuts resulted in a big surge in transactions. The same thing will happen here once sellers get serious.

    W.

  2. Chris Fountain

    We have two classes of buyers, I think, and they overlap: cautious and nervous. Either way, they. not today’s sellers, have a better grip on housing values because they’re out there comparing and couldn’t care less what a seller paid for his place 3 years ago. That’s why I refered to a breaking log jam – right now, buyers are at one level and sellers at another. If a new batch of sellers comes to the market in January with houses priced realistically, the existing sellers are either going to find religion or watch their houses sit unsold. Watch this space!

  3. Anonymous

    ‘Nothing Is Happening’ said it all!