Puzzling home prices
"Just reduced!" might work great at a department store, but not with homes -- assuming you Wonk readers are representative of the buying public.
Just 7 percent of you said in a Wonk poll that your first instinct is the just-reduced home is a deal (minor or major). More than half assume the home is STILL overpriced.
Wonk reader Michele wrote in recently with some concrete examples of homes that sure appear to be in the latter category -- real head-scratchers, in her opinion.
"When I look at these houses, I have to ask: In what sense is this house for sale?" Michele writes. "These houses are on the market officially, part of the inventory, but I wouldn't be inclined to look at them, because the pricing seems to make no sense."
She adds, "I imagine that there can be some debate about whether a house is overpriced. I'm talking about houses where the pricing history suggests a kind of cluelessness that I can't see as subject to much debate. These houses must be overpriced because their pricing history is hard to explain any other way."
Here are some of the puzzles, all in Bel Air -- with addresses redacted to protect the apparently clueless. (Her details, like days on market, are up to date as of about a week ago when she wrote me.)
Another house has had a series of reductions. "But the reductions suggest more of an agonizing psychological process rather than an engagement with market realities," she says. "In August of 2008, the place went on the market for $489,900. A month later, it dropped to $477,900. In August of 2009, a year later, the price went down substantially, to $419,900. In October of 2009, it went down a bit more, to $409,900. In December, it went down to $399,990, in January 2010 (on the 26th) it went down to $396,990, and then a day later to $395,000. So the price has gone down repeatedly in its 552 days on the market, but logic suggests that the original price was about $100,000 too high, and that recent reductions have been pointlessly teeny-tiny."
There's the home that hit the market in March of last year at $399,900. "When it still hadn't sold as of the end of July, 2009, it was dropped down to the mystifying price of $389,543, where it remains to this day, now on the market for 318 days," Michele notes.
Then there's the example that's "especially puzzling," she says. "In May of 2009, it went on the market for $429,900. Then, in July, it went down to $419,900. That small drop is not the puzzling part. The puzzling part is that it went back up to $429,900 in August. And then it went back down to $419,900 in November, where it currently sits."
Is this doing anyone any good?
"I guess I feel that the inventory is more difficult for buyers than one would expect of a so-called buyer's market because it includes quite a few of these peculiar properties," she writes. "And I have to wonder about the sellers and Realtors who are participating in a supposedly rational market in such apparently irrational ways. I realize that some of the 'noise' may be due to 'target prices' dictated by the amounts of the mortgages on the properties. But why such inflated expectations and difficult-to-fathom price histories? Any thoughts you or anyone wanted to offer on this phenomenon would be appreciated."
Well, wonks?
If you're a buyer or seller paying attention to part of the market, I'd be curious to hear what percentage of homes seem to be priced about right, what percentage are too high and what percentage -- if any -- are underpriced. (By "priced about right," I just mean a figure that matches up with what's actually selling. I'm not asking you to try to predict where home prices should be.)
Categories: Housing market experiences, Polls
Sign up for the At Home newsletter 
Comments
In Baltimore City, 5% of inventory is reasonably priced. Another 15% is priced within 20% of what is reasonable, at prices I would call "potentially negotiable" (given that sellers are getting about 90% of their last asking price). Unfortunately, the remaining 80% of inventory is overpriced by more than 20%, with a sizable percentage (perhaps 30%) more than 40% overpriced.
Posted by: John | February 23, 2010 8:23 AM
That last one was easy to figure out. They lowered the price because it wasn't selling, then as the home market heated up because of the home tax credit they thought they would sell it for more. Then after the 1st tax credit passed they lowered it back down where it sits.
Posted by: Bill | February 23, 2010 8:35 AM
I have seen a lot of instances of tiny price reductions and random delisting followed by relisting. I thought most of that was due to people trying to outsmart the computer search engines. So a price reduced home would show up at the top of the search because the price was new and therefore get more people to view their listing.
Posted by: jfg | February 23, 2010 8:44 AM
I can't speak to specific instances as I haven't been looking in the B'more market for some time... but I'll offer a general thought anyway (surprise!) and hope it answers the question posed by Michele: "When I look at these houses, I have to ask: In what sense is this house for sale?"
The properties for sale in this market are ALL some sort of distress situation... or why on Gods green earth would the owner take it on the nose if they're not being forced to sell in some way? If you can afford to pay your mortgage (and even if that is tight)... you tough it out until things are better generally. Well, most sensible people would.
The distress these people are experiencing may not be default related but of another sort, like a divorce or job transfer or perhaps an estate... and with a hook: at least one of the parties doesn't really want to sell.
They don't really care about anything more than holding on to life they have there and/or neither party really needs to sell enough to force the issue.
Look at the mortgage being carried on them and odds are it is still affordable. Look at the Court records and odds are there is a divorce or probate filing.
When they are ready to sell or really need to sell... the ask price will reflect the current market realities. Or the house will sit.
Posted by: MrRational | February 23, 2010 8:47 AM
Michele's analysis is excellent, and in my experience (looking on the Baltimore City market for 9 months) it points to a general trend. There are lots and lots of houses out there that are WAY overpriced, and the owners are just stubbornly hoping that something changes. The crazy thing is that a lot of these houses went on the market TWO years ago. During their time on the market, home prices have declined significantly, but in many cases these sellers have lowered their asking prices by a SMALLER percentage than the general market decline.
Posted by: fronesis | February 23, 2010 8:47 AM
This comes back to the point I made before about a large number of sellers bought at the peak who no longer have equity. These sellers can't drop their price no matter how high it is listed. Coming to the closing table for a loss is done as a last resort, if at all. When you buy high you have to sell high or be prepared to lose money through your down payment or loss in value. Many people took out the famous 80/20 loan which is 100% financing. Also, FHA has become the hottest loan out there which only required 3% down payment up until they recently increased it to 3.5% (not much difference). When you don't put down much money and values drop, chances are you are underwater.
These people in my opinion have few options. First, they can sell for a loss and bring money to closing. Second, They can stay in the home and continue making payments. Hopefully that rate is not adjustable. The third option would be to do a short sale. Most of the time, the lender won't even consider a short sale unless you are months behind on the mortgage. So, the last option is not even a guarantee. If they turn down the short sale, and these people can't afford to pay, then walking away is the most likely scenario. This is why foreclosures will continue to increase.
The homes that are competitively priced are those listed that were purchased pre-bubble. These are the folks who have lost value, but still have enough equity to sell in a declining market. The other homes would be the REO's, short sales, foreclosures, etc. Those are the homes that are really setting the price in the market. Private sellers have to price their home close to these distress prices to be competitive. Sellers who dream to sell their home for what they paid at the peak will continue to have their home listed until they take one of the steps I described above.
Posted by: Frank Rizzo | February 23, 2010 10:03 AM
Why do people not check out real estate public records for the state of Maryland ( http://sdatcert3.resiusa.org/rp_rewrite/ )and do their own calculations/comparisons as to whether or not a home is priced appropriately? Plug in the street of the home listed for sale and check out how much the house sold for and when? Pay particular attention to sales pre-2003 or so. Check out the other homes on the street,community, etc. DO NOT pay bubble prices for a place (2004 to present). IT is that simple. If you do pay BUBBLE prices..make sure you make a good amount of money and have nothing else to spend your money on (a la Tom Clancy) I hate to be blunt but no real estate agent/mortgage broker/current homeowner (besides me) will tell you this information. It is in everyones best interest (except the new buyer) for people to buy at BUBBLE PRICES. Think before you do.
Bill Laimbeera
Posted by: Bill Laimbeera | February 23, 2010 12:39 PM
It may be a good idea to look at that website to view the history of sales for a particular property, but it won't necessarily help with determining a fair market price in todays market. An ethical real estate agent will show you list prices, pending sales, and final sales for a particular subdivision. If the agent does not show you these listings, then find someone else. You should specifically ask for short sales and REO sales in the subdivision.
Here is a good video why lenders would rather foreclose or do a short sale than a loan modification...
http://www.thinkbigworksmall.com/mypage/player/tbws/23088/
Posted by: Frank Rizzo | February 23, 2010 3:22 PM
I think that frequent price reductions are occasionally a marketing tactic to get a listing more exposure. Several sites allow you to sort listings by most recent price change. And many people sign up to receive email alerts whenever a listing meeting there criteria has a price change. So by having frequent small price drops, the Realtor gets their listing out in front of these people more often. I know of one listing that drops a few bucks almost every day.
Posted by: Carson | February 24, 2010 11:24 AM
I agree with Frank that there are people out there who simply can't sell at current rates. These people frankly shouldn't be selling in this market, or should rent instead, unless there's no other option at all. Also agree with Frank and Mr.R that many of the lower prices pulling the averages down at the moment may be distress sales rather than market prices, per se. I may be wrong, but I seriously doubt that we will ever see pre-Bubble prices once these situations work through the system.
Posted by: lisa | February 25, 2010 2:16 AM
Lisa, I really don't doubt that we'll see pre-Bubble prices again" but that has almost nothing to do with clearing out the deadwood of distress sales.
Rather, it is (imho) about aligning home prices with incomes closer to the 2.5:1 ratio that used to be prevalent in Baltimore and using Maryland and mortgage lending policies that actually make sense.
The role of the distress sales, the larger economic conditions and credit crisis in all this is one of pointing out the errors of our ways in distorting the prior and rational practices; like the child in the HCA fable who cried out: "But he isn't wearing anything at all!"
The compound and secondary effect of all those market factors is that of lowering average incomes... which is what will continue to pressure prices to move lower and to remain low.
Posted by: MrRational | February 25, 2010 11:25 AM
Yes, a more sensible home-income ratio would be ideal. When my father first moved to the area in '68 he was making 12K initially and found a good home for 26K and felt that was pushing it. By the time my siblings and I were establishing ourselves in the '80s, total family income might have been more like 50K but a nice place about 200k. Then, we all know what happened after that!
Posted by: lisa | February 25, 2010 3:57 PM
Lisa, 200:50 (4;1) can be argued as being about the expediency factors... like the entry cost to better school districts so you pay more in deductable mortgage rather than non-deductable tuitions.
While those other factors are very real they are more about being an indictment of larger social matters than what the house itself should be priced at: 2.5-3:1
Posted by: MrRational | February 25, 2010 5:12 PM
When I see a house sitting for a long period of time, I check out the legal records. During this market, it is usually sitting because of a legal matter (a divorce, foreclosure or short sale or the owners try not to lose their shirts, are usualy the culprits).
Posted by: smokey | February 26, 2010 1:12 AM