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."
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.)