Wikinvest Wire

A bottom in home prices is still far off

Wednesday, April 22, 2009

Here's a very good indication that a bottom in home prices is still far off in the distance. According to this report in Forbes, some sellers are underpricing their homes in order to generate a bidding war and the speculative fervor in real estate is apparently returning, albeit on a small scale - this is not how markets make bottoms.

Two weeks ago, Joyti Goundar, an agent at Redfin, a residential real estate brokerage, entered a bid of $420,000 for a three-bedroom, 1,625-square-foot La Crescenta home outside of L.A., listed at $299,000. When she lost the bid, she wasn't surprised. In July of 2008, Goundar bid $559,000 for a two-bedroom Arcadia house, also outside L.A., listed by Wells Fargo for $459,900. That one received 105 bids, driving the price up to $628,000, according to Los Angeles County records.

"Sellers want to generate a bidding war, and it's working," she says.
Author Matt Woolsey correctly opines that this is not an indication that the clock has been turned back to 2005, going on to note that another big leg down in prices is likely.

I, for one, have a hard time believing that people would behave like this after what we've been through in the last couple years. Bidding wars? In 2009? Old habits die hard, apparently. For some it must bring back fond memories of a few years ago, but, a half a million dollars is still way too much money to pay for a two-bedroom house in the L.A. area.

8 comments:

Anonymous said...

Unfortunately half a million dollars is still what small homes cost in fairly nice parts of the L.A. area such as La Crescenta and Arcadia (sure you'll get cheaper in Compton or Watts or out in the inland empire). So that is where the market is currently despite all the "it's the end of the world, housing prices are decreasing" talk. But they used to be 700k. I'm not buying, I don't make that kind of income.

Nick said...

Just another inevitable stage, imho. Remember when short sales represented potential good deals, before everyone tried to abuse them and they are now so typically fraudulent and misleading that there's an exclusion box for them on redfin? Or before that, when you could get a good deal at the courthouse steps before the banks always bought the property at loan value? Or when people still went to the foreclosure auction scams looking for a good deal?

I predict there will be many more abuses before the market bottoms out, and many more suckers getting caught up in them. The whole housing market system (MLS, Realtors, etc.) is not very robust against tampering and manipulation; in fact, it is designed in part to allow underhanded behavior. Maybe one good thing to come out of this whole mess will be an overhaul of the RE market system, moving to something more open, transparent, and less easily abused.

Ted S. said...

Shouldn't that first wave of foreclosure resales be hitting the foreclosure market again soon. Those doofuses who paid $400K for a house in 2008 that used to sell for $500K in 2006 but is now worth about $300K in 2009 - they should be sending the keys back to the bank right about now, shouldn't they?

Dave said...

I don't see anything here that indicates the closeness or remoteness of a market bottom. Rather, this is simply an effective way to generate interest in items for sale.

For example, when I first started selling old stuff on eBay, I would set the minimum bid just under what I though it should sell for. Kind of like setting a realistic asking price on a home. I had middling success with this approach, so I started all my auctions at $0.99, even for things that I knew were worth more than $1000.

Bottom line - everything sells, almost always higher than I would have set the initial bid. For whatever reason, people get emotionally attached to items once they have placed a bid, and feel they have to "defend" their bids.

Seems like homesellers have finally embraced this "auction dynamic."

Anonymous said...

I'm sorry, but there's something seriously wrong with a 1,600 sf, 30-year old, two-bedroom house for a half million dollars. Unless its in Beverly Hills or Malibu.

SD Scientist said...
This comment has been removed by the author.
SD Scientist said...

La Crescenta, Arcadia, San Marino are some of the few (and I do mean few) places in Greater LA where you can comfortably send your kids to school, K to 12. Most Los Angeles area public schools would make you feel like you're in Tijuana. Los Angeles Unified School District is 73% Hispanic, 11% African American. More than two thirds of Hispanic first-graders either don't speak English at all or speak poorly.

After tax deduction, mortgage and taxes on a 420K house would be less than a decent private school for two kids.

Dan said...

one decent size earthquake and....

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