No one’s gonna steal my house!

From Minnesota Peg comes this link to a fascinating Wall Street Journal article about the disconnect between buyers and sellers of high-end houses.  As the article points out, it’s a lot like the old joke about the guy with the million dollar dog: “Well, I haven’t sold him yet.”

The latest data from the National Association of Realtors, which rattled nerves on Wall Street this week, showed national home sales are still weak. But they also showed how home sellers nationwide have split into two camps.

Call them “the haves” and the “don’t haves.” As in: Those who have to sell, and those who don’t have to.

The haves are the distressed sales. These include those in foreclosure, and those in pre-foreclosure “short sales.” Such sales are now booming – at bargain prices.

On the other hand, those who don’t have to sell are often hanging on to 2006 prices. And they are hanging on to their homes.

Prices aren’t dropping. And homes aren’t selling.

This could be ominous. It suggests – though it does not prove – that another shoe could be about to drop in real estate, as those who don’t have to sell realize they need to compete more aggressively with those who do. [emphasis added]

The latest housing numbers tell a story.


In other words, the number of distressed sales has nearly tripled in a year.

That’s the good news. That’s a market clearing, at last. Distressed sales are taking place at prices at least 20% below the rest, the association says.

On the other hand, look at those who aren’t in foreclosure or a short sale. They’re selling their homes while still solvent. This used to be called the normal housing market.

Prices haven’t come down much. In some premium neighborhoods they have may even be rising.

But the volume of those “normal” sales is down sharply. They make up just 47% of 360,000 second-hand home sales. That’s 169,000 transactions.

How little is that?

Even a year ago, when the housing market was already in the tank, these non-distressed sales accounted for 82% of 375,000 second-hand home sales nationwide. Or 308,000 transactions.

It’s like the old joke about the man with the million dollar dog (“Well, I haven’t sold him yet!”).

When a real estate market collapses, volumes die first. Prices fall later. So news that volumes are drying up for non-distressed sales has to be an ominous sign. [emphasis added]

Those who live in premium neighborhoods often fancy that they are immune from the slump. “Oh, good quality will hold up,” they say. It’s true good quality may hold up for awhile. But that doesn’t mean anyone’s immune.

And over long terms, different real estate markets have to maintain some reasonably persistent connections. Otherwise many people would move to the cheaper neighborhoods.

The trade now — in theory, at least — may be to sell the place in an upscale neighborhood like Pacific Heights in San Francisco, if you can, and buy a foreclosure deal out in the ‘burbs.


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3 responses to “No one’s gonna steal my house!

  1. Retired IB'er

    Echoes my earlier comments of the dam appears about to break when you posted April contracts.

    The only thing that can avoid price adjustment for the “hold ’em” crowd is a swift return of employment and income levels. IMHO, that ain’t going to happen, and EVEN IF IT DID (which it won’t), then interest rates will rise killing the housing market again.

    Only a matter of when, not if on this issue… The only thing I cannot understand is why more people don’t see it and act accordingly.

  2. greenmtnpunter

    Remember the concept ” relative illiquidity of real estate”? This is what we are witnessing these days. As opposed to being “liquid”, i.e., cash, Krugerrands, marketable securities and the like. We’re beginning to hear those old sayings again, i.e. “cash is king”, “cash on the barrelhead”, and other old Yankee idioms I learned at Grandpa’s knee. Where is the stimulus??? Where is all the liquidity that was/is supposedly being pumped into the markets?

  3. Peg

    greenmtnpunter – I think if you look in Dodd’s and Murtha’s and God knows who else’s little baskets – you will find our purportedly “liquidity” … one way or another.

    You will also find that fear is not good for markets. If folks are spooked that this administration is going to hog-tie free markets, sap the ability of people to make – and retain – profits, then they are not going to bet on the future. All the liquidity in the world won’t help if no one wants to buy – or if they’re too petrified to do it.