David Leonhardt has a terrific column in Wednesday's NYT that hits upon many of our favorite themes:
Real Estate sellers (like other humans) are often irrational;
Price "Anchoring" occurs with many investors;
Here's what we wrote back in September 2007:
Prices have slipped, but not nearly enough to eliminate the inventory. This has lead the usually cheerleading folks over at the N.A.R. to yet again lower their forecast for 2007 existing-home sales for the seventh-straight month. The real estate agent trade group is now predicting a drop of 8.6 percent in home sales versus last year. And, they expect new-home sales will fall a whopping 24% to 801,000 this year, and to 741,000 next year.
Prices have failed to come down enough to jump start more activity. Sellers have been stubbornly sticking to their imagined top tick prices of 2005. Thus, Supply remains high, and if we believe the NAR or OFHEO, prices have slipped only slightly. Econ 101 informs us that until prices fall appreciably, the inventory situation will not improve.
There is a psychological component to all this: It very much reminds me of the investors who, when having missed selling Amazon (NASDAQ:AMZN) at $400 and Yahoo (YHOO) at $200 and EMC (EMC) at $80 and Cisco (NASDAQ:CSCO) at $60, refused to take 10% less. So they ended up riding the stocks all the way to multi year lows.
Speaking of the NAR, we continue to note their counterproductive cheerleading. Over a year ago, we noted a group of Palm Beach Real Estate agents blamed the NAR for putting unrealistic expectations in the minds of sellers:
A growing number of Realtors in Florida are frustrated with the state and national Realtors groups' efforts to 'spin' the market as one that is strengthening and where home prices are stabilizing.
Many (though probably not yet most) Realtors are frustrated by customers who continue to list their homes at price levels that are 'unrealistic,' and as a result, sales volumes - and thus commissions - continue to remain depressed.
While Realtors have noted to customers that many home builders in Florida have slashed new-home prices in order to move bloated inventories, many home sellers are still holding off, hoping - along with FAR and NAR - that prices will start moving back up soon.
courtesy of NYT
Real Estate Inventory Still Building
Be It Ever So Illogical: Homeowners Who Won’t Cut the Price
NYT, March 26, 2008
How Easily Can Your Brain Be Fooled?