October 14, 2006 at 11:20 AM #7736BuyerWillEPBParticipant
In yesterday’s latimes.com:
Would-Be Home Sellers Settle In Rather Than Cut Prices Further.
“After 90 days, four price reductions and a couple of low-ball offers, Morales withdrew his three-bedroom Riverside bungalow rather than cut his $415,000 asking price, already down from an original $486,000.”
This guy bought this house 10 years ago for $86,000. Now, he doesn’t want to sell below $415K because, being a grocery store supervisor, he feels he has earned the good life and is entitled to a 480% profit.
What the current slew of sellers conveniently forgets is that they could not afford to buy their own houses at their current asking prices, or even the “low ball” prices being offered. If most of them cannot buy their own house at these crazy prices, how do they expect anyone else to do so?
So the sellers like Morales will take their house off the market. Of course all the sellers who CAN apply this strategy will do just that. But what we need to remember is that many, many other FBs will HAVE to sell. As the ticking time bomb ARMs reset, RE job losses mount, and the economy gets dragged down, there will be more than enough supply of desperate sellers and desperate bank foreclosures to force prices down.
We are in economic uncharted territory in so many ways. There are simply no fundamentals left to support the continuation of this recent Ponzi scheme.October 14, 2006 at 11:41 AM #37888BuyerWillEPBParticipant
Forgot to include the link:October 14, 2006 at 1:57 PM #37896powaysellerParticipant
too bad this guy will get less and less for each day he postpones his sale. While he waits it out, the motivated and NOD sellers all around him are going to drag the value of his house down even further.
Anybody with half a brain is going to sell before the new regulations take effect for the state regulated lenders. By next year, our gradual 1% price drop could be a sudden 30% drop. What will happen when the subprime market is almost eliminated?October 15, 2006 at 1:05 AM #37911BugsParticipant
Gotta wonder if he’s tapped that ATM and if he even can afford to sell the home for less than $415k.October 15, 2006 at 8:22 AM #37915no_such_realityParticipant
“What the current slew of sellers conveniently forgets is that they could not afford”
Actually, that’s the key point. If you aren’t moving out of state or moving to different place for a real reason (not enough bedrooms for the kids etc.), all you’re doing is raising your tax rate.
If the non-seller didn’t leave, all he’s going to accomplish is raising his property taxes from $1000/yr. to over $5000 a year for a similar place.October 18, 2006 at 7:21 AM #37982LookoutBelowParticipant
Hilarious logic !
Reminds me of the "Bigger fool than I" scenario in reverse. If he cant afford to move even "Next Door" at his current income level, then you would have to conclude NOBODY at the same income level or lower could afford to do so also. Which makes me laugh at his silly thought process when deciding his real estate's value.
"Stuck" comes to mind
I'll bet he has HELOC's all over that property, thats how that 38K ski boat in the driveway and the 40K truck that pulls it got there.October 18, 2006 at 5:48 PM #38010kev374Participant
Homeowners today are totally clueless about market cycles and how they work. They think that just because they take their homes off the market it is somehow going to “protect” the value from declining, that is just being very naive!!
You see there are always going to be sellers who will NEED to sell, and those sellers will have to either cut prices or foreclose..simple as that. These actual transactions will of course set the values of homes. Then there are those that bought a few years ago and have the luxury of lowering their asking prices and settle for a bit lower profits.
Whether it is a first time buyer or an existing homeowner looking to upgrade, the demand for housing is just gone..and of course it would because it was never legitimate to begin with, it was speculative and artificial.
With tigtening lending standards and the realization that the market is in a downcycle first time buyer demand is nonexistant.
As for existing homebuyers, they cannot upgrade unless they get the asking price on their current home which is highly unlikely in this market.
It’s all a question of demand vs supply. Demand has virtually disappeared, so the only possible scenario is prices aligning to a level which creates demand based on economic fundamentals like income and affordability.
This is not rocket science folks… actual prices are down 6%, *LIST* prices are down more like 10-15%, I’ve seen $600k properties with as much as a $100,000 price reduction, that’s a 16% reduction right there to start! Not to mention foreclosures are up 140% in Orange County.
Due to the quick nature of the downturn so far I’m predicting a minimum 20% drop for SoCal by mid next year, with more gradual declines over the next few years. That is my guestimate 🙂October 19, 2006 at 2:32 AM #38030powaysellerParticipant
Good post. Prices are set by the few sellers, demand weakened at the low end due to exhaustion and the ripple effect is working up the chain, and buyers get more fearful as prices drop because the prices could drop even further. Add to this the theme of inventory glut. Inventory must be worked through, and all the construction in the pipeline is making it worse. (Roubini talked about inventory glut in capital goods as a reason that the Fed cannot save us from the recession.)
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