“So, while “the market” (buyers?) sets the price, it is the most foolish buyer who’s willing to take the greatest risks who sets the price in a supply-constrained market.”
That was true during the bubble years but now? I don’t see it much at least not in my neck of the woods. What I see are buyers that are sitting back and waiting for the market to come to them. The buyers are more picky and in tune with market value than I have seen in a long time. Right now, if you are a seller you had better have a damn sharp list price or your listing is going to sit, sit and then sit some more. If you really want to sell right now and your are priced above 750k it is best to start at 5% under recent sales and be prepared to work down from there. There is a short sale in my area that sold for 875k at the peak and eventually got reduced to 599k to find a buyer. That is 31.5% off of the peak price in mission hills and guess what the house just got relisted for sale. A few months ago that would have been a screaming price for an upgraded house. Now not so much. Who knows why the buyer walked but maybe it was not being able to close before the tax credit expired. If my guess is correct, the buyer had a deal 31.5% under peak and walked for 8k. As another example, there was a recent listing for 750k in north mission hills which was pretty much in line with recent comps in that area given the square footage. Well it went pending and ended up closing for 680k. There is another house on a prime street listed at least 50k probably 100k under the previous sale and the house is sitting.
I could give you dozens of examples. Basically, the type of foolhardy buyer you speak of may still be out there to a very limited extent but right now the market is being ruled by buyers that are doing their homework, looking at the recent comps, taking 5-10% off of that and working down from there. There have been some flippers in my area but when they list higher than market the house sits endlessly and then they end up selling it for 10-20% under there original wish price just to get out from under a sinking ship.
