Imagine the pricing quagmire we are in.
The homes on the market today were priced according to comps from 1-4 months ago, which were the craziest-priced sales in the history of real estate.
To make matters worse, sellers are naturally drawn to the highest-priced sales – and today that means the ones that closed for hundreds of thousands above the list price. But there was probably only one buyer crazy enough to pay that price.
Then rates go up to the mid-5s, which to buyers feel like double what they were.
But the sellers have committed to their list price, and their ego is laid out bare for all to see – friends, family, neighbors – all are watching and waiting to see if another house is going to sell for an insanely high price.
What happens if it doesn’t sell right away?
The sellers have to be motivated enough about moving that they will address the results. Many have been on the market for weeks without selling – and have they even received an offer yet?
They didn’t get this far in life without being smart enough to know that something different is needed. But there are only three choices:
- Cut the price.
- Wait it out at this price.
- Cancel the listing.
That’s it, those are the choices.
Most will add a fourth choice – it’s my agent’s fault! If my agent would only advertise more, and do more open houses, and well, heck, do whatever agents are supposed to do to sell my house for my price, then it would sell! But you can spend a million dollars on advertising, and it still won’t sell if the price isn’t right.
This is why the market won’t adjust for a long time. The gap between those crazy comps from yesteryear and what more rational buyers will pay today has never been so wide. It’s probably not 5% or 10% either.
The craziest buyers have already purchased, and left us with unattainable comps. The only question is whether there are any somewhat-crazy buyers left, or if it’s just the rational buyers.
Tip: Throw out all the sales prices of the comparable homes that have sold nearby, and just use their list prices. Those list prices were probably rooted in reality (hopefully), and then in all the commotion, one of the craziest buyers radically overpaid just to win the house. Their purchase price is unlikely to be achieved again, at least for the foreseeable future, but those list prices should be a good starting point.
Look at all the price cuts!:
Zildo 92397
https://www.zillow.com/wrightwood-ca/
This is a favorite canary in the coal mine location.
Bill’s take:
https://calculatedrisk.substack.com/p/what-will-happen-with-house-prices?s=r
Hey Jim, I was thinking of lowering my price by $5,000 on my multi-million dollar house, and you said 5% to 10% might not be enough. How come?
The 206 sales in March had a median sales price that was 10% over the median list price! It probably means that 100+ homes sold for more than 10% over list!
If you are justifying your list price with sales that are $500,000 or more over their list price, don’t be surprised if today’s buyers are reluctant to go that crazy!
BTW – these same buyers weren’t willing to pay the same price for the comps when they had a chance to buy them when rates were lower. They have also lost several bidding wars, and think this is their chance for redemption (that their prudence and common sense will pay off now).
Rob Dawg always keeping a sharp eye on Wrightwood. Years now, isn’t it?
I’d think when somebody really needs to sell, and they cut the price, that it would shake some complacency. Such an important market, and so emotional and irrational — list it on the low side and it will be bid up to its value. Seeing homes go for $100,000 over asking, and then asking $100k extra like you’re going to get another $100k over asking, that’s just nuts. The best I can think is, they want the bragging rights for having sold at the peak of the market.
I’m just as irrational.
> “Rob Dawg always keeping a sharp eye on Wrightwood. Years now, isn’t it?”
Decades actually. Merely sharing since 2005. Like I said, it is a canary. Whatever is trending shows up there first. That’s why I mentioned the large number of price reductions.
I also follow more topical zip codes. La Jolla and such. When markets break, they break at the edges first.
I DONT SEE ANY BIG DROPS UNTIL MAJOR LAYOFFS HAVE BEGUN BEING REPORTED IN THE NEWS 📰
PERIOD
Non coastal San Diego suburbs slow down first. Price drops. Houses sit longer and longer. Spread to the coastal properties last. Could this be the top? Time will tell. Pop some popcorn and watch. Would love to see the flippers eat it.
it is always the realtors fault.. LOL
I flip houses/have a small RE office in 3 locations.
1- Vegas- market is topping .more inventory in past 2 weeks.new listings finally outpacing new pendings this week. lower buyers destroyed by pricing and interest rates. Relo buyers fueling the continuation.
2- SE Florida- Still a rocket ship but similar to Vegas. people still flocking there from many states-speeding up their retirement plans. Big money buying up coastal.
3-San Diego- It is my least fav because it never made any sense to me even 15 years ago. No body sells homes here..unless they have to. (thanks prop 13 ). my neighbor pays 1300 in taxes I pay 16k. similar house. LOL only state in the 50 that has that large of discrepency between old owners and new. (usally a 5-10% diff ..here it can be 90%). difficult and slow permitting, almost impossible to build new with out going through 1000 hoops, paying taxes on flips immediately= very low inventory for forseeable future.
of the 3 locations San Diego was the only one where buyers were consitantly paying massive over list. In Vegas it would be a few k-few% over list -maybe.. and in florida pretty similar to Vegas unless it was special property.
Good to hear from you again REO Andre!
The $600,000 over-list has to be the buyer’s idea, and the realtor just waives them through. If I had a buyer make that suggestion, I’d talk them out of it!