Bad news for sellers

Long ago and far away a bucolic little town basked in the exclusive rays of a very special sunshine, rays reserved solely for the town and its residents because it, and they, were special. When people came into the town seeking to buy a house the wise guardians of the town’s standards would escort them around various neighborhoods, not necessarily listening to what the buyers said they wanted but careful to limit the buyers’ views to houses priced within 10% of the buyers’ stated price ceiling. Why waste time, the guardians reasoned, showing more expensive houses when custom and tradition said that all houses sold for no less than 96% of their listing price (this wasn’t true, of course, but most of the guardians felt they’d be cutting their own throats encouraging buyers to demand significant discounts and so they didn’t). 

Today, despite what they may have heard on the news before quickly changing channels, many guardians still practice the “no higher than 10%” rule when showing houses. But the buyers, hearing the very newscasts the guardians refused to listen to, have become cranky and now demand to see houses priced at twice the buyers’ price limits because they intended to offer 50% of “asking”. The guardians are horrified at this boorishness and many refuse to participate. 

So houses have stopped selling in the pretty town. The sellers and the guardians are trying to hold the line against the barbarians clamoring at the gates, all while the world outside goes to hell. Buyers, sometimes assisted by a few feckless guardians, are sifting through the houses built on speculation because, they reason, the builders of those houses may not have the wherewithal to last until better times return, if better times return. Some deals are showing up and more will surely follow.

Would-be sellers of older homes are being hammered by this new behavior because, if a buyer can pick up an 8,000 sq.ft. house that’s brand new for, say, $5 million, why would he be interested in the seller’s charming old 1950’s house that, as the guardians say, has been “lovingly maintained”? Buyers are content to let those sellers just keep on maintaining their homes. They’re not interested, and until those older houses drop way, way down or happy days return, they will never be interested.

The news isn’t much better for builders of new homes, by the way. A recent review of 51 new houses in Greenwich priced between $5 and $10 million produced exactly no recommendations to a certain  buyer. Either the street was no good, the land was marginal or the size was simply too over the top, and in every case, the price was nuts; in the reviewer and his buyer’s opinion, of course. The sellers of these houses and their guardians obviously disagree or they wouldn’t have them listed where they are, would they? And certainly each buyer has different criteria so what may be unacceptable for one may be just what the other is looking for. Except for those prices.

So the sellers sit and seethe while buyers insult them by tossing 1/2 price offers at them. The buyers may be reaching too far – perhaps a 40% discount is the proper figure – but for now, no one is happy in that beautiful town. One day a prince will come and either convince sellers that they must lower their home’s price to levels they never dreamed of, or restore the nation’s economy and in particular, Wall Street, where multi-million dollar salaries will return and send the recipients of those salaries back to the little town, to buy houses at their old levels. 

And everyone will live happily ever after.

6 Comments

Filed under Buying/Selling Greenwich Real Estate, current market conditions, pricing

6 responses to “Bad news for sellers

  1. jess

    well, that’s one heck of a bedtime story!

  2. Anonymous

    Chris, you sound as if Greenwich is Ground Zero in the real estate collapse. Have you ever taken a gander at some data from some really hard hit places like Florida, California or Michigan? C’mon, stop being such a baby. You are belittling the pain and suffering of those in places much worse off. Every market has its ups and downs. Sooner or later things will turn around and get better. Surely you believe in the cyclicality of markets or have you lost faith? Anyway, if you need a shoulder to cry on just let me know.

  3. christopherfountain

    You misunderstand me – the reason California housing sales are up 33% is because prices have dropped 50%. With the help of foreclosure sales, California home owners have adjusted to a new reality. Greenwich homeowners have not, and are convinced that, if they hold on long enough, the “cycle” you describe will turn in their favor once again. Maybe so – but it takes what, $1 million a year salary to support a $3 million mortgage? If the financial industry bottoms out and stays there and doesn’t recreate the tens of thousands of jobs it’s now shedding, where else will Greenwich home sellers find buyers with that kind of income?

    There will always be a Wall Street, and a financial industry to accompany it. The question for Greenwich property owners is, “how large will that industry be?” And I don’t know the answer.

  4. Retired IB'er

    “Every market has its ups and downs. Sooner or later things will turn around and get better. Surely you believe in the cyclicality of markets or have you lost faith? ”

    So true. There is still a market for tulips in Holland, but I can assure that even adjusted for inflation prices have not regained the levels set in the 17th century during the “tulip craze.”

    If you don’t like that example, how about one a little more recent. Nasdaq hit a high of 5,000 during the Dot com bubble. Today it is at 1,458.

    Someday Nasdaq will approach the 5,000 level again, as will houses approach recent Bubble era highs, but in both cases it is a long way off.

    But as tulips show it isn’t in the bag!

  5. Number cruncher

    Chris,
    Your figures only apply to first time homebuyers. If I own a home worth $2,000,000 with no mortgage, and want to trade up to a house selling for $2,500,000, I only need an income of $250,000 to support my additional housing expense. Of course if I use a realtor to sell my house the math changes a bit.

  6. christopherfountain

    Dear number cruncher – I’m heartened to learn that you “only need an income of $250,000 to support my additional housing expense” to move from your present house valued at $2 million to another one at $2.5 and I certainly take your point that most people buying here in Greenwich aren’t first timers and have some equity (or used to have equity) they can draw on from their existing home. But I still think that even a paltry salary of $250K sets you off from most Americans – hell your new president thinks you’re rich, man! and I question whether, if Wall Street cuts its employment rolls in half, as many are predicting, they’ll be enough rich types to return us to our former pricing levels.