Motivated sellers skewing market?

Still playing catch-up from the weekend: This interesting LATimes piece from Sunday argues that motivated sellers -- builders and banks -- are hurting individuals who are trying to sell their homes: 

"Are you a homeowner who is having trouble selling your house? National housing experts say you can heap some of the blame on those big builders with their much-ballyhooed sales and the banks that have put too many foreclosed homes on the market."

One theme of the article is that price cuts by banks and builders establish new, lower "comps" that leave sellers of existing homes with prices that are suddenly too high. Emailer JJ isn't buying this line of logic:  "Nowhere in the article does ... anyone interviewed for it even contemplate the question: 'Is my asking price too high?'"  Fair point: maybe you can't sell your house because you're asking too much.

Our take: We've heard often -- just last week, from the California Association of Realtors -- that this housing slump won't be as bad as the last one because the economy is fairly healthy, and thus there aren't as many motivated sellers as there were during the recession of the early 1990s. Really? Here we have an article in which real estate professionals are complaining about motivated sellers -- banks and builders -- and how they are driving down prices.

Thoughs? Comments? Email story tips to lalandblog@yahoo.com
Photo Credit: Reuters
Hat tip: JJ

Comments

[Cal]

Is this a problem? Motivated buyers (flippers and financial illiterates getting loans they couldnt afford) drove prices up during the boom the same thing is happening in reverse. Apparently markets can only go one direction or its a problem.

Buy something you can afford and stay in for a long time and dont take the equity out or else you are going to be a victim of the fluctuations of the market.

[John]

Why is it that home price appreciation of 100-200%+ in just a few years has been completely reasonable to many people in CA, but the concept of a 40-50% correction over a similar timespan seems completely outrageous?

[Paul Hiller]

I'm in the industry over 30 years, currently as an independent mortgage broker, and I have never seen things deteriorate at such a rapid pace. A lot of the bad data in the news is of the trailing variety and is nearly worthless in explaining the true situation today. Sellers want to blame the media who I think are late to the party. The real value of an asset at a given moment is what a willing buyer in an open market will pay, both parties hoping to get the better deal. Builders slashing prices is indicative of how bad the market really is. There are way too many highly motivated sellers out there, be they individuals, builders, or banks, to think you can hold your ground and have the market come to you.

[Tex]

This article is typical LA Times pro-real estate drivel. Folks, it's called supply and demand. If your price is too high and competitors are undercutting you, you need to drop your price -- that is basic economics. Are we supposed to feel sorry for these sellers who are overpricing their homes? So instead of making a 300% profit, they will only make 50%? Boo-hoo. Why shouldn't short sales and foreclosure sales bring down the comps in the neighborhood -- if your house is priced significantly higher than those "comps" that is objective evidence your price is too high. If these sellers are truly "motivated," they need to start evaluating the situation objectively -- as do the banks and the builders -- and pricing their homes accordingly.

[BAM]

"...price cuts by banks and builders establish new, lower "comps" that leave sellers of existing homes with prices that are suddenly too high."

Isn't this just an example of the market correcting back to rational pricing?

Really, what could be sillier than someone complaining that fair market prices are driving down the (paper) value of their house? They certainly didn't complain when the putative value of their home was rising.

[Dizzy Dean]

Wait...you mean the principle of supply and demand works to the downside too?!!! Gosh who would have thunk it

[War ChestSM]

The funny thing is that even the sellers who appear "motivated" right now aren't facing reality yet. As Mr. Hiller says, things are deteriorating at a blistering pace which has never been seen before. Do you think most sellers are accepting this, and furthermore, do you think most sellers are believing that prices can tumble over a period of 5 years?

Everything that I am seeing from the way that current listings are priced, to how the banks are pricing foreclosures, to conversations with friends and coworkers suggests to me that we are still mainly in the "denial" phase.

Banks and builders are starting to find religion in the "inland" areas, but denial is still running deep in many areas. I personally know of several people in LA who have bought/refinanced/remodeled within the past few years and who are having big problems with making their payments. They keep hoping the market will "come back next year".

Just wait until these people get past the denial phase. Wait until the banks start undercutting each other. Wait until the listing description says "motivated seller" and you can actually believe it because the market has been so bad for so long. Just wait.

[Giacomo]

The idea that over-priced private sellers can "blame" builders and banks for falling prices -- that is a bass-ackwards spin. The professionals simply know how to find the market price: keep lowering it until you find a buyer.

Individual sellers need a give up on the idea that their house is worth what they owe, or what they need to make a profit, or even their "break-even" figure (thanks, but I don't want to pay for your granite counters, travertine tile, jacuzzi tub, or SS appliances, and I LIKE to have walls enclosing the kitchen). Your house is worth what someone will pay for it, and finding that one special fool who will pay 2005 prices is going to get harder and harder.

[abbytherabbit]

I'm a seller in the Valley and I bought in 2002 and my mortgage is very affordable, we were paying less than what apartments are renting for, we don't have to sell because of a crazy loan. The reason we are selling is because we are either going to move out of the state or might stay if prices in a place with a more desirable school district become affordable. I looked at two properties yesterday in Woodland Hills, one was for 550k and was a total dump, didn't even have two full bathrooms, was dirty, small and needed a lot of work. The other one was 539k and was pretty much a tear down. So even if we sell our house in Canoga Park and put about 100k down on the crappy little 550 place we will still be paying about 3,000 a month in mortgage, insurance and taxes. UHM... who can afford that??? My husband and I both make on the lower end of what a LA Unified school principle makes for goodness sakes. We are not super earners but above the median and still can't afford to live in the worst house in Woodland Hills. I would sell my Canoga Park house at cost if I could get into the next house at a reasonable price. Oh and I looked up on Zillow what the owner of the 550k place paid for his home, 250k in 1998 and it looks like he put next to nothing in on improvements. Yeah 300k in less that ten years....out of state is looking better and better.

[jb]

modified from John...

Why is it that home price appreciation of 100-200%+ in just a few years has been completely reasonable to OUR GOVERNMENT, but the concept of a 40-50% correction over a similar timespan seems completely outrageous?

[Sandibe]

I was going to sell my slightly used big screen TV for $2,000 on craigslist, but Best Buy decided to hold a clearance sale and sell the exact same TV, brand new, for $1,500. Curse Best Buy for screwing me from $2,000. Oh wait, it's called a competitive market.

[Jeremy(jemarqu)]

Darn those motivated sellers! They ruin everything for the less motivated and greed.

[Steve]

This is a free market and hype has nothing to do it with it. The media is late as usual, like they will be when the market recovers.

[Cal]

When the sales volume drops the sellers are really going to learn that the market is made in the margins. No sales in a half mile in the last 3 or 6 months and then a desperate seller or REO gets sold for 100k less, the banks will now latch onto that house as THE comparable and appraisals (for refinances as well) will be cut to that level. It is already happening on a wide scale in Florida and Central California. We haven't even got to the really conservative underwriting phase yet, it just seems like it compared to the no underwriting phase of the boom.

The realtors should learn "small ball" but they all are trying to swing for the fences in this enviroment and it will just excarbate the situation. Managing sellers expectations is really the only thing they can do now, financing defines the So. Cal. market realtors aren't going to change the banks mind. Financing has dried up faster than prices have dropped therefore transactional volume will continue its decline and all the industries dependent on transactions (lending, title, apparaisers, realtors, construction, furniture, etc) will continue to suffer.

The situation is exactly like a casino only having a bunch of empty $100 limit table blackjack tables and a bunch of dealers and cocktail waitresses waiting around for the patrons incomes to rise to level where $100 limit blackjack is a comfortable level or they can drop the table limits and fill up the tables so everyone can keep working. When you are the rake volume matters more than price.

[Raughle]

Blaming banks and developers for selling at the new market price is just silly. Those parties are simply participating in the market at the new market prices, no more no less.

Newsflash: if you're trying to sell a house for 600K, and banks and developers are selling similar homes in your neighborhood for 500K, your house is now worth 500K. It's really as simple as that. And if you still have your house listed at 600K and I'm your realtor, I'm going to come reclaim my sign from your front lawn so I can put it someplace where it might actually do some good.

And I'd leave you the post hole so you could have a spot to bury your head.

[NumbersGuy]

I agree with Paul. The market conditions set the market price. If builders and banks can't sell homes at current list prices, they are lowering them until they do sell. They are lowering the price until they find the market value.

I am really tired of realtors listing details on their homes that say a home is priced "below market". Wouldn't it have sold if it were priced below market?

[Eric]

As a young professional a couple years out of college I am becoming more and more optimistic about my housing future with all this turmoil. The last few years I'd given up hope being able to buy WHERE I want to live.

Pointing the finger at builders and banks for being "motivated sellers" seems like a great way to grab attention and make headlines, not necessarily the most informative. What are banks and builders doing any different than they have done in the past? Please correct me if I am wrong but this is business as usual, perhaps at a different scale and in a different market environment than the recent past. I bet the builders were just as motivated when the prices were rising so fast.

This isn't their first time at the rodeo.

[Charles Wilson]

I live in Seattle (where the real estate market is rapidly deteriorating, by the way), and the complaint about motivated sellers reminds me of a conversation I had a few years ago with an old friend who was visiting me. We'd been through an unusually dry winter, and there was talk that it might be turning into a drought.

"Um, Charlie," he said, "you'd be a lot more credible if I didn't see moss growing on the sidewalks."

So, tell me, Peter, did the L.A. Times find anyone lamenting the motivated buyers of 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005 and 2006? Didn't think so.

[Enlightenment]

Stupid is as stupid does.

[DDB]

I agree. Builders and foreclosures have ruined this market. It's quite simple - we should pass a law that residential real estate cannot be sold for less than the last selling price. This would put an end to this downward spiral, give new buyers an incentive to buy now, and give everyone who bought early the gains they need to be whole.

[Arche Logos]

From the good people at tickerforum.org:

Folks, it's time to call upon our elected representatives to address the outright fraud and lack of discipline perpetrated by financial institutions which have gotten us into this mess. There is now an automated online petition available that will automatically fax your Senators and Congressmen after you sign it:

http://financialpetition.org/

Maybe we can't do much about the damage that has already been done to our economy and financial stability, but we can at least pressure our leaders to take action to prevent the further erosion of our Nation's financial system.

[Go Browns]

Yeah right this automated petition is going to help.

The Fed don't have the money to solve this. Or enough brains to even not make it worse, and to think a online petition is going to make a difference is stupid.

Wait till this affects real estate assessments and budgets and then watch your sales taxes skyrocket.

[Shadow Lurker]

DDB,

You can't be serious? Legislating price controls in real estate is about as idiotic an idea as I have heard yet. We live in a market driven economy. It's called capitalism. It has been the main force in western economics for about 500 years. You are advocating communist economic theory (nobody can fail or go broke if prices don't fall or change). That idea lasted, in practice, for roughly 80 years before imploding on itself and throwing large portions of eastern nations and their third world cronies into an economic tailspin of which they are only recently coming out. Good idea to destroy the economy of California so people who were stupid enough not to practice common sense can't drown in their own recklessness. Time to put some chlorine in the gene pool.

[sheila]

for all the people gabbling about "simple" economics, i got a reminder - economics ain't "simple" and banks/giant corporate builders are not on a level playing field with individual SFR sellers. for one thing, they can write off losses against their gains. i'm sure one of our investors here can explain the finer points of that process.

secondly, there is the matter of scale. if you have 2,500 houses for sale and make only $25,000 profit on each, you are ahead by $62,500,000 and you don't need to move into a new overpriced house. if you have 1 house for sale and make only $25,000 profit, you are basically broke and can't get into the next property.

in those 2 senses, i don't think we are comparing apples to apples, and it seems clear that the giant corporations can knock prices much lower than the small seller who got in in 2004 and needs to move for personal reasons.

[Robert in Palm Springs]

DDB is an idiot. Why not put price controls on everything? Isn't there a word for this -- Communism?

The great thing about the real estate market is that is really is a free market. No one can control prices because the market is too large. In the end, it is the aggregate value of thousands of individual transactions every month that determine the value of individual properties and the broader market.

Now real estate is undergoing the necessary adjustment because incomes have not kept up with prices forcing supply to outstrip demand. This is going to be a long process. Because this is going to affect all facets of our economy, the last asset class that remains grossly inflated is the stock market. The five big brokerage houses in tandem with the Fed and the US Treasury are using all means available to keep these inflated prices in place for completely self-serving reasons.

In the end, the stock market, too, must correct. Had the market been allowed to correct this summer, the Dow would probably be arountd10,000
or so by now, a correction of around 30%. By continuing to leverage themselves, the brokerages make it even riskier for us now and in the future.

Our economy is slowing down, credit pools are retracting, and house prices are falling. Ultimately the stock market will reflect these realities no matter how the brokers, the Fed and the Treasury try to manipulate the markets. So much for free enterprise. And, by the way, these are the same people who brought you Irag, so who do you trust?

[MyLessThanPrimeBeef]

My guess is that motivated buyers and motivated sellers are the same people.

Have you even see them in the same room together at the same time?

Motivated buyers yesterday
Motivated sellers today
Skewing the market?
That's what they do everyday!

[Minnesota Nice]

I don't think DDB was serious, people.

It's called "flame bait" or "snark" depending on your intent.

Methinks DDB was going for a bit of both.

[joeinlosangeles]

But a seller's "personal reasons" are irrelevant to the value of a house. If a "giant corporation" is selling a comparable house down the street for $50,000 less than yours, no one is going to pay you an extra $50,000 just because you need or want the money.

--in those 2 senses, i don't think we are comparing apples to apples, and it seems clear that the giant corporations can knock prices much lower than the small seller who got in in 2004 and needs to move for personal reasons.--

[sheila]

sorry, perhaps i wasn't clear. i never said that someone should or would pay more because the seller needed it. the question on the table was "can sellers attribute price drops to lower comps created by banks and builders?" i appear to be the only one saying "yes."

everyone else was saying "free market!" as though everyone was selling the same thing from the same economic position, but i was saying it's a lot easier for the banks and corporate builders to shave prices way way down, or even take a loss, because a tiny profit across a large inventory adds up, and losses can be offset by gains (with tax advantages usually). most sellers have an inventory of 1, so their profit must all be made on the 1 unit. in a "normal" market, it is mostly individual sellers vs. individual sellers (albeit with differing equity), so prices are much more likely to stay higher...

so yes, i think we can, at least in part, "blame" them (banks and builders) for the price weirdness (not like i care, i'm just commenting on the pricing), because they can drop prices much easier than "regular old sellers."

[Tom]

I think most folks are griping about the way the banks, brokers and mortgage companies didn't do any real oversight, got greedy and stupid and made unrealistic loans to unthinking purchasers who now are dumping or just walking away from these properties. In some cases they can afford to make payments but don't feel they should have to since the homes have lost value.

This isn't a market correction or a reflection of a 'free market'. It's greed and stupidity coming to bite everyone who owns or is involved with selling real estate. I have a neighbor who is dumping a townhouse he bought for $359,000 for 284,900.

What's bad is that he and other impatient 'desperate' sellers like him destroy everyone else's equity, so somebody that wanted to refi an ARM might not be able to. And the local agent who's got more and more properties available, sells fewer and at lower prices and earns less commission. And with credit tightening, the pool of available buyers is drying up.
Maybe this is funny to a few of you, but it feels like a RECESSION to me, which will affect everyone, and it's not a laughing matter.

I wish everyone would calm down a little and maybe the media could stop beating this thing to death, and perhaps with time, we might see some kind of recovery. Amen.