Is the sky falling?

I think not, although the real estate market in Greenwich is not looking so great right now, at least for sellers. Home sales are down nationwide and prices down 11%. Bloomberg (entire article linked above) quotes this fellow:

“Underlying demand appears very weak; it seems many sales are coming from cheap prices on foreclosed properties,” said Sal Guatieri, senior economist at BMO Capital Markets in Toronto, whose firm’s forecast of a 4.97 million sales pace was the closest in a Bloomberg survey of 67 economists. “Home sales will continue to fall over the next few months because of tightening credit conditions.”

It is true that credit is hard to come by, and I know of several sales that have fallen through when the buyer’s mortgage did. Right now, cash is king and if you can swing it, there are bargains to be had.

If sellers will cooperate. I wrote yesterday that I prefer dealing with builders rather than homeowners right now because to them, it’s just a business deal – how much is it going to get out from under a bad decision? (For the same reason, working with professional criminals was easier: they’d done the crime, and only wanted to know how much time they’d have to serve – amateurs were much more difficult, wailing that they were innocent, how they’d never do it again, did the prosecutor know who they were, etc.).

But I digress. A reader asked, how is the market affecting sales of older homes, and what should such owners do? Sales of older homes are suffering – buyers can get new houses for what these older homes are asking and, all things being equal, most buyers prefer new to old. As to advice on what to do, my answer is, walk like a builder. Divorce yourself from your emotions, forget how much you paid for your house, forget what your neighbor got for his place last year, what you’re going to tell your friends at the Club, etc. and make a business decision: do you want to get out of your house now? Do you want to, and can you afford to, wait, with the accompanying uncertainty of not knowing how long you’ll have to wait and whether prices will recover or sink to a new level and stay there?

Some owners can wait and are willing to. If you’re one of them, great. I’d take my house off the market and stick it out until better times return. Some “experts” are predicting a recovery by this coming summer or next fall – others aren’t so optimistic but if you can sit things out, I’d recommend you do so.

But if you can’t, or don’t want to, then cut your losses and either accept the first offer that comes in waving cash and a no-financing-contingency deal or slash your price to the bone and hope that stimulates a buyer. There are buyers out there – I’m working with a couple of them and I know that public open houses are drawing them in. Right now though, buyers and sellers are miles apart waiting for the other to blink. My money’s on the buyers because we’ve entered a buyer’s market – this stuff happens from time to time – sorry.


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

4 responses to “Is the sky falling?

  1. CEA

    Chris, what % of sales are foreclosure or “forced” (spec builder, like 480 North) sales in the area, if that is the only thing selling?

    I’m getting the impression most people reading this blog aren’t thinking “how much do I need to slash to sell my not-new place fast”, but “when will my house be worth what it was in 2006?”

    The banking system is hanging by a thread (I maintain that it has collapsed, and the record will show that in a few years); layoffs are rampant, and the banks will never again be dishing out loans (510 Round Hill getting its entire construction loan in one big chunk?) the way they used to.

    Just “smartening up” and not lending to convicted felons, or to people only putting 5% down, will take pricing down. Layer on the current economic environment and you have a recipe for – if not actual downward convulsion – then a flat pricing environment for quite some time.

    This gives me little joy to say, as we bought our house after 2000.

  2. Retired IB'er

    According to Diana Olick (MSNBC -real estate beat):

    “The Realtors are reporting that foreclosure sales – that is distress sales being foreclosures or short sales – have risen from what they thought was 35% to 40% of all existing home sales, now they are saying it is 45% of all existing home sales. They also are saying they are seeing further softening toward the November numbers.

    And they are hearing from the Realtors they talk to that the re-default rate on a lot of these loan modifications are running at 50% – that is half those of modifications aren’t working.”


    I will agree with you that the banking system is for all practicable purposes insolvent and raise you one: so is the US government.

    My biggest fear is that when FCB’s stop purchasing US treasuries and the US dollar slips from its world reserve currency status, then all bets are off. The result being either out of this world inflation or outsize increases in interest rates. Neither of which will be good for a US consumer driven economy.

  3. CEA

    Retired IB’er: One day I would like to meet you, I feel like we are too simpatico!

  4. Cos Cobber

    I’m afraid I have to agree with you two as well. The deepseated and far reaching costs of the economic collapse will change real estate finance for at least a couple generations to come, perhaps longer. With all the wealth destruction (and my god, is it absolute carnage, with no place to hide [hello treasuries!]), the best we can hope for a stabilization at say 2002/03 prices and a small dead cat bounce. There is no doubt in my mind that the bigger they are, the harder they will be failing. There are simply far to many high-end real estate spec houses in Greenwich and other select parts of the country to ever meet demand; even if it was still 2005. A return to anything remotely like what we had seems like a complete impossibility.

    As far as banking, are we at the quarter pole or half mile pole in terms of bank failures/write downs? Three big ticket bad news issues yet to come; i)NYC real estate is poised to implode (word I heard today is that condo sales have absolutely stopped in the city (big surprise)), ii) unemployment is still rising and likely to do so for a while to come which will lead to even more foreclosures and; iii) businesses have yet to default in bunches, which for some groups like retail, has to be a foregone conclusion 6 to 12 months from now.

    Yes, large swaths of the global banking system has collapsed, but shhhh, don’t tell anyone.

    ’tis grim out there. happy thanksgiving.