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days on the market

 
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john p
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PostPosted: Mon Feb 27, 2006 5:01 pm GMT    Post subject: days on the market Reply with quote

I think when sellers determine their price they do so by looking at what the other houses are selling for in their community. They look at the array of houses which is already ordered by the price and say "Hey, this is where our house fits in right between these two” This is essentially market price positioning. It wouldn't make much sense for them to price their home lower than several other homes of lesser value right? Would you sign on with a realtor that advised you to do so?

I think that the days on the market will have a very big impact this selling season because when a house first goes on the market, the sellers are more gung-ho and hopeful about finding a buyer and are comfortable that their price is within the context of others that are for sale. These sellers are waiting for buyers who are willing to pay the sticker price. Because there are many carryover homes from the prior season, you get a handful of sellers that are tired of the waiting game and price their homes lower than the market price position. When the buyers start to see things out of order like this, they become more patient and more inclined to give lower offer on other homes based on the observations of homes that dropped their prices significantly over time. Once a buyer realizes that time is on their side, again, they become more selective and patient.

So, again, the seller's cycle begins with gung-ho and ends with fatigue. The shorter the days on the market average is the more gung-ho the sellers are and overall market is and the graduated array of house prices keeps climbing the staircase. The longer the houses stay on the market the more the seller's psyche turns to fatigue and it only takes a few homes to sell lower than the range before all the home prices need to backslide. (Not to mention the MAJOR contributing factor of rising interest)

The irrationality that led to the price increases (beyond what was attributable to lower interest) will become clearer and reality will start to set in (like a hangover to some). Even if things backslide to where the fundamentals support them they would drop over 30 percent in Boston. See the CNN Money article:

http://money.cnn.com/2005/08/18/real_estate/buying_selling/overvalued_housing_markets/index.htm

This article which identifies Boston as being overvalued by 31 percent was written in August 23rd of 2005. This figure does not take into account the discount for the value deduction associated to the steep rise in interest since that date. Sellers gained value from lowering interest rates but are reluctant to realize that their home value depreciates when interest rates rise. It's hard to feel bad for a seller that is trying to squeeze an additional 30 percent plus from someone else.

Further, with the baby boomers retiring, the decision that most face is how much more money can I save if I work for another year or two. If I live in Massachusetts and my house goes up another 10 percent plus, even if I don't save, I'm making money. Well what if the equation worked differently and if I waited a year I'd lose 20 percent of my house value (which is a big part of my nest egg)? All the money that I saved and the traffic that I sat in all year will get washed away. Further, if Boston sinks further than other areas that I want to retire to, my buying power decreases and time is not on my side. It is better to cash out. Feel bad? This like what buyers needed to consider in the past few years. No matter how much money I can reasonably save in the next year, it is not going to cover the price increase of these houses going up. Now the buyer thinks about how much money they can save PLUS the price decrease and time is really on their side. The only reason why they are in the game at all is fear of interest rising. If sellers don't discount their prices in a graduated manner to follow the increases of interest rates and sit it out, the crash is going to be ugly for them and they will watch the spiral go down.
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