Market musings

I’ve been pretty busy this past month showing houses, negotiating and even selling them, and while we’ll have to wait for September’s statistics to come out before there’s hard data, my general impression is – surprise! – there’s still a long way to go before our inventory adjusts downward to prices where they’ll sell.

Houses are selling – no doubt about that, but at roughly 2003 prices, where they’ve been stuck for years. Some houses bought in 2010 and 2011 are getting close to what their sellers paid for them then, but 2010 prices were so hammered off historic highs that their sale now doesn’t demonstrate an improvement. People who bought in 2006 and 2007 are the worst off, but there is so much out there priced as though the market crash never happened that, I think, we’re going to continue to see a bloated, overpriced inventory for a long time still.

What I am seeing, and I suspect the median sales price statistics will bear this out, is the gradual erosion of prices: houses that once asked $3.5 million will still sell, but only after they’ve been marked down to $2.5, and this is true in all price ranges. What that means is that I can now show clients houses at $2.5 that are equivalent to or even better than houses asking $1 million more – guess which ones we’re bidding on?

Sellers, for the most part, seem to be those bitter clingers our President complains about, insisting that they can still get 2007 prices for their homes and refusing to budge from the religion that says Greenwich is special and immune from economic reality and competition. Again, my vague impressions are no substitute for hard data, but that’s certainly what I’m seeing – there’s a large pile of dross out there, and it takes real effort to sort through it and find the few houses offering value. That’s exactly what my clients, and surely everyone else’s, are doing: sorting. And if they can’t find value in their price range, they’re not holding their noses and paying more than they think a house is worth, they’re retiring to the sidelines and waiting.

Sellers seem to think they can wait buyers out – my money, and that of my clients’, is on the other side of that bet.


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16 responses to “Market musings

  1. cos cobber

    CF, with all the talk about Greenwich losing its luster, who are you seeing on the buy side as the type of buyer in the market? where are they from and what stage are they at in their lives?

    My observation from Cos Cob – south of rte 1 – is that – for the most part families are staying in Cos Cob or in Gwich and not moving away (i can only think of one family leaving town and that was someone leaving for a job outside of the NYC area). The sellers continue to be mostly seniors and empty nesters. The buyers tend to be young professional families who have either rented in town for the past 4 years or are new to town.

    • Absolutely, CC – young families, mostly in finance but certainly not all (those who aren’t, at least in my client pool, are often young entrepreneurs who’ve started and built their own companies). Assuming I’m working with a representative sample, these buyers are all successful (who else can afford Greenwich?), shopping in the $750,000 fixer-upper class up to $5 million price categories. The most typical search: Newish construction, five bedrooms (one of which planned for a nanny), room for a pool, south of the Merritt and all for $3 million. That’s not happening, so some compromises are in order.

  2. AAnon

    Wouldn’t take that bet, The real question is how long it will take for people to adjust to the new reality – or the new normal as Bill Gross calls it. The big unknown in my mind is whether we look back in five years and think of 2012 as the good times, world macro events don’t give me much room for economic optimism despite what the stock market may do.

  3. Definition of Value

    I think location is the buyer’s basis for value— or it should be.
    Location is also the best indicator for ease of resale.
    Next important is the construction
    Can it be built today for less money in an equivalent location?

    But of course all that is thrown out when you drive up to the house and fall in love through the windshield. First impression.

  4. Anonymous

    Definitiely seems to be a shift in preferences to properties close to town. Old farts selling properties north or even near the Merrit aren’t having much luck unless they give it away below replacement cost. No wife wants to be stuck with three kids in the sticks.

  5. Anonymous

    I have a nice rental in town and a lovely older couple came to see it. They want to downsize, can’t handle the upkeep and expense of their big house. Kids long gone, etc. They’ve been trying to sell for well over a year, at upper $2MM area. Last renovated in the late 80’s/early 90’s. I would venture a guess there’s a metric boatload of similar sellers in that same boat. How many properties priced over $2MM in Greenwich? Quick search of a local RE firm website says there’s over 300, when filtering at $2MM+ as minimum.

    That’s one hell of an inventory. I wonder if there’s adequate supply of buyers. A question for the ages, no doubt.

  6. anonymous

    A big question that will determine how much of the over-priced inventory will ever be adjusted downward is whehter or not those owners really need to sell their houses, or have just listed them at a price that they’d be willing to move if they got that price. What’s your guess of how many of these “sellers” really need to move?

  7. Anonymous

    chris i bet your 75% guess is pretty accurate.

    of the handful of folks we know with swank houses, probably half of them are underwater and/or house rich but cash poor.

    for example an otherwise $5-10k plumbing repair job on a more modest house is often a minimum $30k+ adventure on a bigger place. dunno ’bout the rest of you, but it takes me a lot of hard work and effort to net $30k+ in order to have sit around for spending cash.

    lotta people can afford to buy, but not own. big difference.

  8. anon

    It’s nice to see that our tax dollars which are being used by the Fed to buy mortgage backed securities and manipulate lower interest rates is actually causing some activity. Unfortunately, there’s no end game – there will be QE4, QE5, etc, because the Fed is all in and can’t stop. Otherwise rates will go lower and people won’t be able to borrow money for houses they can’t afford. The irony is the middle class is getting screwed because if house prices dont come down, they can’t afford to buy a house. As long as Obama gets re-elected, Bernanke will have a job and all this non-sense will go on…

  9. The New Normal

    I bet if people had to pay to list their homes for sale the listed inventory would drop by 20%

  10. Chief Scrotum

    Biggest cattle prod shock to the sellers will be if interest rates begin to creep up. I reckon each 1% higher in interest rate equates to about a reduction of 10% of “buying power”. Throw in a boatload of deferred maintenace sellers think nobody sees, lower salaries/bonus’ and prices could easily stumble 20-25% as sellers begin to realize that the exit door is only so big.

    My bet is with CF and his buyers.

  11. Anonymous

    Chief Scrotum NAILED IT.

    We recently walked on a purchase where deferred maintenance would’ve been at least 20% of purchase price. Sellers thought the blue carpet, formica kitchen and a few dozen Edison fuses were nice modern touches. They couldn’t understand that, yes, their RE agent priced it too damned high in the first place and the offset to the ask was due to much-needed renovations. Hey, if they wanted to do them, we’d gladly buy it–hell of a lot cheaper short term (and not to mention easier) to roll the cost of renovations in a purchase money loan vs. having to suck it up and pay cash for tradesmen.

  12. D

    Agreed. I’m on the sidelines and in no hurry.

  13. AJ

    Uncertainty and fear has pretty much frozen everything — nobody wants to make a move. It’s all about control, and we are all being driven like cattle down a loading chute towards — everyone holding worthless paper? Major frauds (thefts) like MF Global and Amber Gold (you ain’t getting your money back) have driven investors from gold certificates into physical gold, and who can blame them because if I were holding certificates, I’d be very worried that the gold just might not be there or of the commingling of funds. So what happens? All of the sudden tungsten filled gold bars appear just in time to scare everyone away from physical gold and back into paper assets — stocks, bonds, even commodities unless you took delivery but MF Global makes even that look scary — or cash (paper). These fake bars were not drilled and filled but, if you look at the pictures, were made by a very sophisticated manufacturing process. So this is more than just the work of some clever scheming group or individual. But there may be more to this story than just the creation of fear and ordinary theft as the following video suggests.

    What to do? You could go to gold coins, but even those could be faked, and there are reports of the TSA confiscating them from travelers, and if you travel with cash and get pulled over, you can count on the police to seize it as proceeds of crime, even if you have a receipt to prove you took it out of the bank.

  14. Anonymous

    CF, Chief Scrotum, and Anonymi say don’t buy houses yet – I agree.
    AJ says don’t buy paper gold certificates – I agree.
    AJ says be careful buying physical gold – I agree.

    Well, it’s back to ammo, fuel, and canned goods.