[quote=bearishgurl][quote=jstoesz]I disagree with both of you, bg and sdr. You are focusing on comps too much. It has more to do with the buyers.
A buyer needs to decide what something is worth to them. And this is a full spectrum of fields from location and schools to home construction and lot size. But it all boils down to the simple question, is this house worth $XXXXX more than that one? If the cheaper neighborhoods get cheaper it makes the expensive neighborhoods look more expensive and thus not as worth the premium they command in turn driving down prices.[/quote]
What else besides comps is there to focus on, jstoesz?? They tell the story of what a recent buyer was willing to pay. Again, buyers purchasing in the “cheaper” neighborhoods often don’t have the wherewithal to purchase in the “expensive” neighborhoods, thus you need to take into account that we’re talking about two separate sets of buyers here. It doesn’t matter if the currently “expensive” areas “look” more expensive. They were too expensive before that buyer started shopping and they’re too expensive for him/her now. This buyer will not be able get an accepted offer in any areas in which they cannot qualify to purchase. Not only are these pricier areas “not worth the premium” to this buyer, they couldn’t afford to purchase there even if they thought it WAS “worth the premium.” If the “expensive” property is not in distress, another buyer with more resources will eventually come along who will get a successful accepted offer on the property or it will be removed from the market by the seller to await a “better day” :=][/quote]
Here’s the problem with this line of thinking: it assumes that prices are inelastic. Nothing could be further from the truth. Prices are not determined by what sellers “think” their houses are worth. They are determined by what buyers are willing and able to pay.
A buyer is often willing to pay a certain amount more to live in a certain neighborhood over another neighborhood, but to assume that their choices will never be affected by the price differential between “more desirable” and “less desirable” neighborhoods just isn’t realistic.
I’d argue against sdr’s 1/10 buyers who are willing to move to a better lot/house/neighborhood (but less desirable zip, for instance) for a much lower price. There is a price difference where almost ANY buyer is willing to make that change, IMHO. Let’s say a $600K, 900 sf, falling-down shack on a small flag lot in Encinitas vs. a gorgeous $300K 3,500 sf single-story custom on a 3/4 acre lot with a 2/2 guesthouse, fantastic pool, play area, etc. in one of the best neighborhoods in Escondido. For many (again, I’d bet far more than sdr’s 1/10), that’s a no-brainer.
