A Reality Check for Home Sellers
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PostPosted: Mon, Sep 24 2007, 11:00 am EDT    Post subject: A Reality Check for Home Sellers Reply with quote



By AUSTAN GOOLSBEE
Published: September 23, 2007

ECONOMISTS and other humans don’t always see eye to eye. “Economists tend to think people are crazy because they won’t sell their houses for less than they paid for them — and people think economists are crazy for thinking things exactly like that,” said Professor Christopher Mayer, director of the Paul Milstein Center for Real Estate at Columbia Business School and an authority on real estate economics.

With house prices falling in many markets around the nation, this particular quirk of the human psyche might end up costing the economy a great deal, Professor Mayer says.

Classical economics can’t explain this behavior. That’s because people who refuse to sell their houses for less than they paid for them are violating a cardinal rule of the market: stuff is worth what it’s worth. It doesn’t matter what you paid for it. But when Professor Mayer and his co-author, David Genesove, a professor of economics at the Hebrew University in Jerusalem, studied the Boston condominium market in the 1990s — scene of one of the biggest real estate busts in recent American memory — the actual patterns of human behavior did not seem to follow the standard rules at all.

From 1989 to 1992, prices in Boston fell sharply, with condominium prices dropping as much as 40 percent. For a great many of those who bought condominiums during that period, selling could be done only at a significant loss. And, basically, many people refused to sell.

Their study, “Loss Aversion and Seller Behavior: Evidence From the Housing Market,” appeared in The Quarterly Journal of Economics in November 2001. The professors gathered data on almost 6,000 Boston condominium listings from 1991 to 1997 and showed that for essentially identical condominiums, people who had bought at the peak and were facing a loss generally listed their properties for significantly more than those who had bought at a time when prices were lower.
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http://www.nytimes.com/2007/09/23/business/yourmoney/23view.html
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PostPosted: Mon, Sep 24 2007, 2:06 pm EDT    Post subject: Re: A Reality Check for Home Sellers Reply with quote

An interesting article. However, I think it misses the even more nuanced behavior affecting many sellers in this general area...

Prices are down, but they are only to the point they were about 3 years ago (they peaked about 18 months ago and have lost about another 18 months of gain from before then). So most people selling still stand to gain on their sale even with the down market. But they are still pricing too high and holding out for unrealistic offers given the current market. They are in denial.

Why? Not because they are avoiding a real lose, but a hypothetical one. Most homeowners eagerly tracked the gains based on their neighbors sales during the up market and automatically adjusted their expectations of their own "net worth" (which is not supposed to include home value but most people do anyway." So if their neighbor sold a similar house for $850,000, people have a hard time accepting they may need to sell for $750,000 because they have invested in that extra $100,000 mentally as theirs and treat losing it like a loss, even if they paid $500,000 for their home...

As the article says, they need to get real. Anyone who doesn’t take the early 2005 comps and subtract 15%, is not entering the market realistically right now. Instead, they are just helping flood the local market with pseudo investory of houses "not really for sale" in practical terms. And I say this as a realistic home owner, not a current buyer…
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PostPosted: Mon, Sep 24 2007, 5:49 pm EDT    Post subject: Re: A Reality Check for Home Sellers Reply with quote

I agree with the following:

Quote:

“If you want to sell your house then you list it at the market price and you sell it,” he said. “If you don’t really want to sell then don’t put it on the market. But don’t say you want to sell and then set the price so high that you spend the year cleaning up every morning, having people walk through your living room and look in your medicine cabinets and reject you. That’s just painful — and expensive.”
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Guest






PostPosted: Mon, Sep 24 2007, 5:57 pm EDT    Post subject: Re: A Reality Check for Home Sellers Reply with quote

the reality is that when the price came to the current market level, buyers jumped in from sideline. even in this market, i witnessed multiple offers for desirable homes, especially in 700K to 1M range. with intereste rates going down and bailing-out subprime lenders, i doubt you can see 10 to 20% down from 2005 level in cranbury, west windsor, plainsboro, or princeton.
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PostPosted: Mon, Sep 24 2007, 6:32 pm EDT    Post subject: Re: A Reality Check for Home Sellers Reply with quote

Guest wrote:
the reality is that when the price came to the current market level, buyers jumped in from sideline. even in this market, i witnessed multiple offers for desirable homes, especially in 700K to 1M range. with intereste rates going down and bailing-out subprime lenders, i doubt you can see 10 to 20% down from 2005 level in cranbury, west windsor, plainsboro, or princeton.


We already have been seeing 10-20% down from the 2005 market in these cities. Look at any of the actual sale comps (not the listing prices). This is the rule, not the exception. The only people who don't recognize this are the very people mentioned in the article and the above post, sellers or owners who are estimating their hypothetical value and have not closely studied the current sales. I have bought and sold in this market within the last two years and have tracked every single sale in Cranbury for the last 4 years. Prices are down approximately 15% from 2005. Yes, homes are still selling in the current market, when they finally accept offers at least 15% below the 2005 value.

There is absolutely no sign that the recent Fed rate drop with change this. For one, it doesn't directly affect morgtage rates. And just about every major economist who has reported on the housing market since the drop has said it will have no significant price impact and a majority still expect more softness through at least 2008.

This isn't the end of the world. The housing market has always been cyclical. My suggestion is if you aren't planning to sell, stop counting the hypotehtical value of your home and just sit it out for a while. If you do have to sell, accept that the market is down and come out of the gate at least 10% down from what you would have in 2005. Or, as the article suggests, don't bother selling. And don't get trapped in the idea that you're house is "special." It may be, but it is still worth 15% less than it was as a special house in 2005.
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PostPosted: Mon, Sep 24 2007, 6:45 pm EDT    Post subject: Re: A Reality Check for Home Sellers Reply with quote

Show us a few houses which were sold down 15% from 2005 to support your theory

> have bought and sold in this market within the last two years and have tracked every single sale in Cranbury for the last 4 years.
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PostPosted: Mon, Sep 24 2007, 9:42 pm EDT    Post subject: Re: A Reality Check for Home Sellers Reply with quote

Guest wrote:
Show us a few houses which were sold down 15% from 2005 to support your theory

> have bought and sold in this market within the last two years and have tracked every single sale in Cranbury for the last 4 years.


That's like trying to prove a negative. They almost all have. Show one that hasn't.

Even the Township appraisals done a year ago were, for the most part, lower than sale prices for the same houses that sold in 2005.

Out of curiosity, do you believe the prices haven’t dropped 10-15% since the peak in 2005? If so, do you think they haven’t gone down at all or that they have gone down but by a lesser amount and if so, how much? And what are you basing your opinion on?
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aaa
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PostPosted: Mon, Sep 24 2007, 10:04 pm EDT    Post subject: Re: A Reality Check for Home Sellers Reply with quote

The most dramatic price reduction in my neck of the woods that I know of is this example:

Listed on Aug. 2006 for $919K. Sold around a year later for ~$707K.

I believe the seller probably made a handsome profit even after the price reduction.
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guest 2
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PostPosted: Mon, Sep 24 2007, 10:49 pm EDT    Post subject: Re: A Reality Check for Home Sellers Reply with quote

I’m not a realtor, but here’s a few:

4 bed/4.5 bath Woods at Cranbury sold 6/2006 for $1.517M
6 bed/5.5 bath Woods at Cranbury sold 2/2007 for $1.365M (had asked $1.675M probably based on the above comp)

Silvers Lane sold on 2/2006 for $965,000 (appraised 10/2006 for $880,000)
Silvers Lane sold on 4/2007 for $815,000 (asked $999,000, appraised 10/2006 for $848,000)
(homes in this neighborhood were asking over a million in 2004-2005)

Cranbury Heights Estates sold on 7/2005 for $1.25M (appraised 10/2006 for $1.165M)
Cranbury Heights Estates sold on 10/2006 for $1.185M (appraised 10/2006 for $1.176M)

And the list goes on. The above are only a year apart but the drop has been over a two year period so far. Homes in Shadow Oaks were getting mid-$800’s and now are in the low $700’s. Cranbury Green homes were getting into the $900’s and are now in the low $800’s. Even brand new homes like Liedtke were selling for $1.3M’s in 2005 but were back down to $1.1M’s by the end of 2006.
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PostPosted: Tue, Sep 25 2007, 11:32 am EDT    Post subject: Re: A Reality Check for Home Sellers Reply with quote

aaa: it would make more sense by comparing sale price with recent assessed value. the original listing price is just seller's expectation. that one on Main street was originally listed 1.25M but now it is $750K and still sit there.
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PostPosted: Tue, Sep 25 2007, 12:04 pm EDT    Post subject: Re: A Reality Check for Home Sellers Reply with quote

I think recent assessed value gives a good indicator on whether
the house was sold at premium or discount.

4 bed/4.5 bath Woods at Cranbury sold 6/2006 for $1.517M
6 bed/5.5 bath Woods at Cranbury sold 2/2007 for $1.365M (had asked $1.675M probably based on the above comp)

first one assessed value $1.40M
second one assessed value $1.38M

the first one sold at 8% premium

>>>>

Silvers Lane sold on 2/2006 for $965,000 (appraised 10/2006 for $880,000)
Silvers Lane sold on 4/2007 for $815,000 (asked $999,000, appraised 10/2006 for $848,000)
(homes in this neighborhood were asking over a million in 2004-2005)

the first one sold at 9% premium

>>>>

Cranbury Heights Estates sold on 7/2005 for $1.25M (appraised 10/2006 for $1.165M)
Cranbury Heights Estates sold on 10/2006 for $1.185M (appraised 10/2006 for $1.176M)

the first one sold at 8% premium

---------------

> And the list goes on. The above are only a year apart but the drop has been over a two year period so far. Homes in Shadow Oaks were getting mid-$800’s and now are in the low $700’s.

Recent buyers seem prefer modern design than large property.

> Cranbury Green homes were getting into the $900’s and are now in the low 800's

one was sold at $970K in June 2007. the rest were sold around 800K closed to recent assessed values.

> Even brand new homes like Liedtke were selling for $1.3M’s in 2005 but were back down to $1.1M’s by the end of 2006.
Quote:


No recent sale?
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PostPosted: Tue, Sep 25 2007, 2:41 pm EDT    Post subject: Re: A Reality Check for Home Sellers Reply with quote

What part of "not a realtor" was not clear? This was all publically available data from this site and the Internet. It takes at least a few months for actual sale data to make it to the Internet unless you have access to the realtor part of the MLS... But what's your point? Are you actually suggesting that the price trend has reversed in the last few months and if so what are you basing this interesting notion on? Certainly not the current asking prices on for most of the homes.

The difference between the earlier sales and the appraised values is not a "premium" and that idea makes no sense because the appraisals were done months to a year after the earlier sales for each neighborhood. The appraisals are supposed to reflect fair market prices at the time they are done. What it shows is that the fair market prices dropped between the mid-2005 to early 2006 sales and the October 2006 appraisals. Then they dropped further by the later sale example in each neighborhood, even where the later sale had a higher appraised value.

The best gauge of pricing is actual sales. List prices, at best, reflect the ceiling of a market, but since most homes are having to reduce prices before a sale they are not much of an indicator of fair market. Homes like the $1.25M one on Main Street was never worth anywhere in the ballpark of it. That was just an irrational seller.

You still haven’t listed any examples of recent sales that are not down from 2005 comps.
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FL
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PostPosted: Tue, Sep 25 2007, 8:30 pm EDT    Post subject: Re: A Reality Check for Home Sellers Reply with quote

here are some houses sold recently in cranbury greene development.

street assessed value sold price sold date

Statis $910K $965K 06/2007
Statis $865K $850K 04/2007
Chamberlin $729K $775K 09/2007
Chamberlin $889K $830K 07/2007
Perrine $789K $770K 08/2007
Perrine $829K $805K 07/2007

you can see most of them are sold around assessed value.
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PostPosted: Wed, Sep 26 2007, 4:02 pm EDT    Post subject: Re: A Reality Check for Home Sellers Reply with quote

FL wrote:
here are some houses sold recently in cranbury greene development.

street assessed value sold price sold date

Statis $910K $965K 06/2007
Statis $865K $850K 04/2007
Chamberlin $729K $775K 09/2007
Chamberlin $889K $830K 07/2007
Perrine $789K $770K 08/2007
Perrine $829K $805K 07/2007

you can see most of them are sold around assessed value.


Hi FL!

Your data is very current. Where did you get the info? If possible, I would like to get the info too. Thanks!
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cranhead
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PostPosted: Sat, Sep 29 2007, 4:44 pm EDT    Post subject: Re: A Reality Check for Home Sellers Reply with quote

The latest federal data came out last week. Prices dropped on average 8% year over year, the second straight year of decline. Inventory levels are at their highest in over 30 years partically because there are so many houses on the market with prices that are not consist with the current market values. And new home prices, considered a better indicator of market value since the builders are less emotional about maintaining price levels against market conditions, dropped much further in price.
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FL
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PostPosted: Sat, Sep 29 2007, 8:01 pm EDT    Post subject: Re: A Reality Check for Home Sellers Reply with quote

cranhead,
new home sales number vraies significantly from month to month. when you look at northeast region, sales was up 42% in August while down 27% in July. It is hard to draw any conclusion from there. with interest rate going down and bailing out plan in place, I would think this fall is the last change to buy at low.
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