It’s The Psychology, Stupid…
Mary Umberger of the Chicago Tribune nails the housing market with the line, “it’s the psychology, stupid.” The economy is still moving ahead, the dollar is weak allowing international buyers bargains getting into the market, and interest rates are low.
But the buyers and sellers can not make a deal. Sellers are holding out for the dollars of yester-year and buyers are afraid they are buying too early. So agents and brokers sit waiting for the impasse to be cleared. Once commerce starts up again we will not have the salad days of the early 2000’s but we will have a marketplace functioning normally. Now all we have is a national game of chicken.
“Mismatched expectations,” explains Jay Ritter, a professor of finance at the University of Florida who says that consumer behavior is the wild card in the marketplace impasse. Many home sellers, he says, are in love with the old days, when home prices seemingly rose by the hour. And sellers, he said, are stuck in neutral, waiting for a better deal.
“When prices are going down and there are articles in the news about prices dropping, it leads more people to wait and see, and it becomes a self-fulfilling prophecy,” Ritter said. “Rather than closing the deal now, they’re on strike, waiting until after prices have fallen.”
This week, the impasse manifested itself in a 13 percent decline in the nation’s existing-home sales in August, as reported by the National Association of Realtors. Thursday’s report from the Commerce Department showed a 21.2 percent drop in sales of new single-family homes year-over-year, to an annualized rate of 795,000, the lowest since June 2000. via chicagotribune.com.
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Comment by Sock Puppet on 28 September 2007:
I’m not sure it’s just pychology Tom. As I understand it average home prices have tracked along at three times the average family income since about 1960. Now we’re up to 4 to 4.5 times the average family income. It just can’t be supported too much longer.
Comment by Sock Puppet on 28 September 2007:
Sorry. Forgot to flag my comment as me.
-Athol
Comment by Tom on 28 September 2007:
Athol
I do not disagree with your point, and places where I have seen huge run ups the markets need to come back and get rid of the speculation bloat they acquired.
But there are markets that are dead right now that have not had the rampant appreciation.
I was talking to someone last night that is running a very high end residential community. They should be immune to economic pressures as this is the kind of place where people pay cash and their sales office is dead for new and resales.
The group psychology of the market is wait. Their is no penalty for waiting and people are taking their time.
Again, you have a valid point for some parts of the country but this malaise is nationwide right now and pure economics can not account for all of it.
Tom
Pingback by Location, Location, Psychology? » Pasadena California Real Estate Blog on 8 March 2008:
[...] make an offer, lets just take our time and see what happens. Before making an offer to purchase, a home buyer has many factors to consider. A slower market will tend to make buyers more [...]