bostonbubble.com

[rogin16]

First let me say I've been lurking on this forum for a while now reading the very insightful posts and the lively debate (though sometimes a bit curt).

I was in a situation recently where I offered 15% below asking (which included 2 other concessions) for new construction in a Middlesex county city that has been on the market for 200+ days. I am unrepresented. The listing agent (or one of them) called me back and asked if that was my best offer (instead of counter offering). I told her I'd have to think about it (because a new development had come on the market the next day after my submitting the offer). The following Monday I sent her an email saying yes it was my final offer and I have not heard back. This was about a month ago.

Since then they lowered the price on the place 10k (or about 2%) but it's still on the market.

I guess my point is that the agent asking "is this your best offer" doesn't mean they'll accept it if there are no other offers.

[john p]

I think that when a selling agent asks "Is this your best offer?" That means that they are just following up for the seller and at that time the seller isn't prepared to give a counter offer.

Basically it kind of seems to work like this. In a down market, the selling agent if they are sleazy, which most are, will ask buyer to make any offer. The selling agent then proceeds to beat the crap out of the seller to either accept or give a counter offer. If the seller gives a counter offer, the selling agent then proceeds to try to push the seller to drop their price. If I were selling, I'd play my cards close to the vest because I don't trust real estate agents and if you made a counter offer with one potential buyer that selling agent would most likely communicate in some shape or form how flexible you were.

I went to one property and the selling agent gestured with her hands that the couple was getting a divorce and that they were flexible. I thought that was pretty sleazy of her because she was getting paid by the seller and she was acting in her own interest in a hurtful way to the seller.

Real estate agents want a transaction period and most don't care who wins in the deal, so they try to get a feel to whom the weakest link is and typically both the selling agent and the buying agent go after that weak link.

[john p]

I might call the company and communicate that you really liked the place and had reached to your limit and that with mortgage rates going up, you might not be able to maintai the current offer.

[rogin16]

In my case, it seems like the Developer/Builder owns the particular real estate office that's selling it (or if he doesn't, it seemed that way).

Do you think they aren't aware of the fact increasing rates will mean people will sustain the few offers they are getting?

In my original offer I pointed out, as justification, that the economy is tanking and that because MA is trailing behind the places like Cali it has further to fall than many other places and the 15% decrease is by on the conservative side on how much prices/values will fall in the next year.

The reply to that by the agent was "The builder wants you to watch Jim Cramer on CNBC. He says we've reached bottom and the economy is starting to turn around. I really wanted to ask her if this was the same Cramer who said Bear Sterns was doing well the week before it died but I wanted to remain civil.

That basically signaled to me that they weren't ready (even after the last few units in their development have languished on the market for this long to give up hope).

In my email about the offer being final, I mentioned the fact that the new development came on the market and it effectively doubled, if not tripled, the supply of similar condos--implying that if they had very little traffic/offers now, it won't get any better. Clearly to no effect.

I'd figure though that these people who are "professionals" would know this stuff don't need it pointed out to them.

[GenXer]

I drive past several houses which went on sale relatively recently (some were on and off). Just today I noticed that several of them have sale pending. These are poor quality houses. I think a number of people are panicking that they will not get a good rate or a good price, and are plunging head first. This is always true when there is nothing on the market available.

I call this the Eastern Block Mentality. If you are shown a full supermarket, you casually pick the best of what they have. If you are shown empty shelves with a couple of sardine cans, you will go for the cans, no questions asked. You will even go for cat food, if its tuna or other type of fish. Anybody from the Eastern Block can easily confirm this type of behavior.

So what people are doing is they are exhibiting the 'Eastern Block Mentality' when it comes to buying houses in this market. They get neither the price, nor the value, and the meager 10% off (from the stratospheric unsustainable price) is not even a quantity worth talking about (you may counter, 'But its money!', and I'll say - baloney). House prices are more than capable of plunging another 50% - nobody knows. Two years ago anybody suggesting that the median plunges 50+% in CA would have been called a lunatic. So anybody buying houses in this market either has too much money, or they believe that prices will never go down more, and we have reached the proverbial bottom, period. You have bought into the myth of 'immune' towns, with unemployment growing beyond projections, and with no end in sight (and with many, many more layoffs coming, and with every state in the country getting ready to unload, literally).

There is no question that real estate will keep plunging away, and there is no bottom in sight. For those who feel there is, you are placing too much faith in a government which has only just begun socializing everything, meaning less money and more Eastern Block Mentality. So, just to throw a bucket of cold water on those who are hell-bent to spend their money on overpriced antiques which are called 'houses' in these parts of the country, I say good luck. To the rest of us who are patiently waiting until the real market opens up, I say, it may take a while, but we'll get there. How do we know when we get there? When the number of listings skyrocket, and when there are no bidding wars on overpriced antiquated houses, and when the new constructions pick up steam at reasonable prices. And possibly, the state of MA goes bankrupt, as it is sustaining a cadre of outrageously compensated bureaucrats.

Bottom line: there is no reasons to buy now - job losses may overtake anybody who is foolish enough to buy an outrageously expensive house, as this recession may last another 10 years (which nobody can predict). Another word of good advice - stop listening to 'experts' who are predicting that this recession will end next year. They have no idea, and they can care less - but if you buy a house and lose your job, you may join the ranks of the prime borrowers who default in the next wave.

[JCK]

[melonrightcoast]

[FieldGrass]

The advises on "is this your final offer" not meaning anything are right. We kept our offer the same. The listing agent asked the same question again a few hours later, convinced our agent. But we sustained our offer. The listing agent told my agent then that with the offer as is, we will NOT get the house.

Between walking away and do something about it, we think it worthwhile to just test the water. We stepped up $5K. Our offer is expired by now and we did not hear back, which means they are going after other offers.

Our offer is actaully pretty strong. 6% below asking, 2% below assesment, any closing date (we are renting with flexible terms), strong finantials.

Apparently, this house is a hot-sell. Don't they see GenXer's gloomy outlooks? Or they are crazy-buyers as rogin16 and melonrightcoast's cases?

There must be sensible reasons.

Let me try to make an objective statement about this house.

Given uncertainties in the market, this house is still a good opportunity.
1. For many people, housing price trend is just one uncertainty out of many many others.
2. Excellent location, excellent school, acceptable house and yard, and reasonable price (around assement) still warrent a hot sell.
3. For buyers buying into location and school (whether it is reasonable to buy into these will take another debate), once the house enters into affordable range, it is (proven), and will continue to be a hot sell.

[samz]

I feel like a big component of this pricing situation is essentially a form of "group think" -- both buyers and sellers come to expect houses of a particular quality in a particular town to have some expected value.

Despite my best efforts, I find that I'm a victim of it too. I moved here from Texas in 2005, where I had owned a nice house for about 6 years. I sold it for $295K, which at the time seemed like an outrageously high price. Then I arrived in Boston and realized $295K is chump change. Now I find myself comfortable with the idea that an ordinary house will cost half-a-million dollars. I'm actually suspicious when I see a house in, say, Arlington that is being listed for under $400K!

The problem is that I don't see how we can break out of this group-think. It seems like sellers could continue to hold out, forcing buyers to resign themselves to buying something crappier than they'd like for more money than they'd planned. Furthermore, all discussions of home prices are mediated by a single organization -- the association of realtors -- which has a very strong interest in maintaining the status quo and in preventing prices from moving outside the expected range.

[balor123]

[GenXer]

Groupthink. There were studies done (don't remember off the top of my head - probably by Nobel Prize winners Kahneman and Tversky) which quantify this pretty good. Basically, it turns out that by themselves, people have different ideas as to the prices of things, but when you put them together in a room, they converge pretty quickly to a common price (not sure what the actual quantity measured was, but it was something very similar).

We know that bubbles all come to an end, and that they can not be sustained by controlling prices and/or supply. This approach has been tried before, and in the end all of these bubbles burst. Now, you have a choice, as a free rational being to either buy into the bubble mentality (and face the consequences), or to avoid the temptation (which is always much harder, but is more rewarding in the long term).

So, here are some fallacies along those lines - feel free to add to this list:

[JCK]

[GenXer]

Yes, it is true that there may be some areas where house prices remain high. It is possible for a bunch of high net worth individuals in places like Wellsley and Lincoln to hold their ground, sometimes longer than the recession can last. But it is not easy to predict how long a recession will last, and how much these people are willing to lose.

When a seller does not want to lower prices, this says only one thing - they want to make up what they lost (just like the person who lost money trading stocks wants to make even larger bets to get back what they lost). This, too, shall pass, when the only choice they have is between going bankrupt and selling at a loss.

Let us examine the statement 'prices haven't really appreciated much in MA realtive to CA'.

What this says is that you can have a big bubble, but you can not have small bubbles. Yes we can. And we may argue that in MA the prices can not come down a lot more, but the price to rent ratios are still quite extreme, and our rents are definitely not cheap by national standards. Everything hinges on job losses and mismanagement by the state government (i.e higher taxes, huge budget shortfalls, etc).

Rental market is overflowing. The median rent is dropping, and probably dropping fast. However, rents can not collapse. This is the 'risk-free' real estate investment. Ok, rents can collapse if half the state picks up and leaves, which will probably not happen all at once. The house price to rent ratio is so high that it is the house prices that will keep moving towards the rents, even as rents inch away. The more they inch away (i.e. down), the more the house prices have to go to 'catch up' so to speak.

[JCK]

[GenXer]

JCK, it wasn't you who made the argument - I was using a generic statement that I heard people make. My point is still valid though. One thing I refrain from doing is trying to put a number on the future price movement of real estate. There is no way to guess accurately, and it is futile to do so. Prices in MA may hold out for the next 5 years - nobody knows. Yes, many people (majority, most likely) will be ok, but those who have to relocate and sell as well as those who overestimate affordability will get hurt.