Seller’s optimism is strong

I know of two recent offers, each 80% of asking price, that were not only rejected but met with actual scorn. “I’m not giving my house away!” and “We have plenty of people looking at this place” were the responses. I realize that my fellow agents are feeding these fools’ delusions, but I wonder whether they’re doing their clients any favors?


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7 responses to “Seller’s optimism is strong

  1. Jack Martin

    Someone should tell these sellers that, plenty of people also look at the Brooklyn Bridge everyday, but very few actually buy it.

  2. Renter in Waiting

    It should not be surprising that there is a temporary flatlining of the housing market in Greenwich in terms of both list and final sale prices. Home values have come down a good bit from 2007 prices and there is a considerable amount of wealthy buyers on the sideline that don’t need a mortgage and feel the time is right (or the time has to be right) to pull the trigger on a home purchase. To say Greenwich house prices are sticky is an understatement. However, wealthy buyers don’t represent the entire market and ultimately the market forces will come closer to long term equilibrium. There is simply no way to avoid this no matter what real estate agents and others say or wish for. At some point over the next two years, the following market corrections will happen:

    – Supply: the true Greenwich home inventory will be on full display in Greenwich with the pent up shadow inventory finally out there in the sunlight to be factored in by the market. This will be a combination of bank owned homes coming to market and a sizable portion of sellers “on the sideline” no longer having the luxury of waiting out the market downturn (for whatever reason).

    – Demand: the realization that “upwardly mobile” homeowners can’t swing that next phase of a bigger home because of the reduction in value of their existing home effectively reducing the demand for $2 million plus homes

    – Interest Rates: interest rates/inflation rising to a new equilibrium that factor in the following market forces: (i) the significant increase in national debt and the interest on the debt that needs to be paid by the issuance of treasury securities, (ii) the increase in cost of overseas commodities and raw materials/inputs due to the rapid growth in the APAC region, (iii) the real rate of interest factoring into account the new, higher level of unemployment, and (iv) the ending of government subsidization of mortgage backed securities (which is just starting to happen) and the market figuring out the mortgage interest rate that compels mortgage companies to issue new mortgages that can then be securitized. This will directly affect homes below $3 million and will have an overall impact on home values.

    Lack of Bottom Line Growth/Productivity: Finally, the stock market factors in all of the economic forecasts over the next 12-24 months. The stock market prices don’t necessarily tell you where the market “is” but where the market is expected to be. As a casual economist, I note there are no forecasts of increased worker productivity (which was a big driver of real growth during the 90s) and there are no new drivers of domestic growth. The market is banking on increases in consumer demand to drive “top line growth”, which is very shaky and scary. The US is now a predominantly services-based economy that rises and falls with consumer demand. It would not be surprising if there is a sizable stock market correction if anything materially unexpected occurs or if simply expectations that have been priced into the market don’t occur. Also, cutting expenses (and workforce) to show bottom line growth has been fully exhausted. Some would argue that a lot of the stock market increase can be attributed to non-market interference by way of the incredible increase in the monetary supply and the fortuitous stabilization of the dollar due to the bigger crises in Europe.

    The market simply can’t be fooled. There is another phase of market adjustments that will happen. The question is whether it will be prolonged by government interference (that also feeds into the psyche that we have hit bottom) or if we will allow the market to naturally correct itself. Another immutable force – father time – will tell.

  3. kidding really!!

    I heard a really dumb person suggest her house is worth 25% more than 2007 highs when she had it on the market for 2 years previously.

  4. Retired IB'er

    Renter in Waiting said:

    “The market simply can’t be fooled.”

    While I agree with all that you wrote generally. I feel compelled to modify your conclusion.

    While it is true the market can’t be fooled FOREVER, it certainly can be fooled/manipulated at any point in time AND it can be fooled/manipulated for far longer than one might expect. As Keyenes said (I paraphrase): “the market can be irrational far longer than most can remain solvent”.

    With the government hell bent on manipulating the housing market, I fear the disequilibriums we are discussing may last quite awhile. Certainly that is what the FED is hoping as they try to create wage inflation to bail out the economy and allow the nominal value of housing stock to once again appreciate (note the use of nominal).

    Like you, I do not think they can succeed, but I am certain the process of correction will last far longer, and be more painful, than I can imagine unless Bernanke is hit by a truck and the FED changes course dramatically.

  5. cos cobber

    sounds like a pair of Gideon Fountain clients!

    I kid of course…

  6. out looking in

    seems like the main point is missed- all it takes is one to be fooled…the “market” exists in the abstract…i.e., i am not in the market for another home but should a newer home with a 2005 assessment in excellent condition come to market at 40% of assessed, i’m buying….many other “potential” buyers lurk (same with sellers)..also, there are different types of inventory…demand for turn key homes may have a “demand factor” of 3x, while one needing extensive renovation may have a factor 0f 0.33x…we recently bought (Oct 09) and ALL the homes (save 1) that was on our “short” or “expanded short” list have sold…price and condition were 2 important factors…the only one still on the market is absurdly priced, and we only had it on the list as we expected the sellers to get real…they have not, and they still own their home

  7. Peg

    It always amazes me that they don’t seem to appreciate what “we’ve got lots of people looking at our home” really means. If lots of people are looking – and yet none are writing offers – something isn’t right. Either the house has something “wrong” with it – or it’s priced too high for the market.

    Yes; it is that simple.