Monday, October 30, 2006

Clinging to 'La-La Land'

From the Sacramento Bee:

Real estate agents have spent much of the year complaining that homeowners were in denial, clinging to the notion that they were selling into a red-hot market and refusing to cut their price despite daily evidence to the contrary. Many are still resisting. Mike Lyon, head of Sacramento-based Lyon Real Estate, says the market may decline another 10 percent -- and still sellers aren't convinced. "

"About half the sellers are out in la-la land," he says. "That's better than before. Half are serious and are starting to reduce their price. I still think only 10 to 20 percent of the market is priced to sell."
...
One huge issue that most sellers don't pay attention to: New-home builders are exempt from such personal distress. "They have the ability to discount more than you do," Lyon says. "They look at it more from a business sense, and it's easy for them to cut prices because they're not in love with their homes."

Any glance at real estate advertisements or a visit to model homes will show what he means. At William Lyon Homes in Elk Grove recently, sales representatives were handing visitors to their model homes an imitation credit card. "Our gift to you ... $40,000," it states. Developers who once paid closing costs, threw in free window blinds, landscaping, washers, dryers and plasma TVs are now cutting prices outright. The combination of incentives and price cuts can top $150,000 in some cases.

Builders, who are still putting up more houses than there are buyers, say they are discounting heavily in attempts to "find the market."

12 comments:

Anonymous said...

In the article, they include 4 counties of inventory data (~15k), but then turn around and post 8 counties-worth of sales (~3500). Brilliant!

Anonymous said...

I thought Mike Lyon said that the market would be stable???

These realtors don't seem to understand real estate economics.

Anonymous said...

JTS communities is trying to sell their corporate headquarters in a attempt to raise cash. As sac. real estate statistics has brought to light. Their communities have huge inventory and are undergoing liquidation sales. Asking price for the HQ is $11,400,000. They have owned the property for the last few years, and maybe have $5mil-$6mil into it.

jr said...

They're selling their office building? That doesn't make any sense. Why doesn't JTS just sell off all the houses they have in their standing inventory? There are a few buyers if they price them right ($100-150/sf?). They have been trying for months to dump the 4,000 sf homes for $600,000 or so. They better go to $400,000. About a month ago, their adds said they were going to end their liquidation sale and raise their prices after Oct. 31. Hmmmm. Looks like that strategy may cost them an office building. And they'll still be stuck with all the houses. In this market, I think owning an office building is a better investment.....unless you're downsizing, firing everybody and leaving the new buyer with an empty building and no rental income. Who would pay $10,400,000 for an empty building? Boy there are a lot of scenerios to think about when a bubble pops.

Anonymous said...

It's getting tempting now (not tempting enough to start breaking out the checkbook)! The new homes we've been eyeing are now giving both the $50K off AND the below market interest (4.8% for a 30yr fixed; with buydowns to 1.8%, 2.8%, and 3.8% for the first 3 years respectively). On top of that, they are planning on releasing 3 communities in 2007. Who would've thought the money I have saved up for a 2000 sqft home can possibly be a 2500+ for less money in a few months?

Anonymous said...

Anon 9:24,

Relax. Enjoy your nice rent payment at $1500/month. Buying now wiil cost you $4,000 a month or more. Even in the 43% tax bracket, you still lose $1,000/month. And housing is a falling knife.

When you see the Realors selling their Cadillacs at the corner gas stations, then you'll know it is time to buy.

We have a trillion dollars in loan resets in 2007. The individual is going to start competing with the home builder then. So far it is just the home builder driving this train wreck.

And what, you think prices are going to start appreciating all of the sudden? They are still dropping thru 2008 and it is doubtful anything will go positive until 2010 at the earliest.

Anonymous said...

I totally agree with Anon 1:39. Prices are so out of touch with reality it's ridiculous. Cracks me up to see sellers cutting their prices by $1000 or $10,000. My opinion: a 30% price cut almost gets us into the ballpark. Prices are completely out of the stratosphere - they're in La-La Land, in the Real Estate Fantasy World. This is going to be an extremely long ride down. After all, the late 80's boom took something like 8 years to settle out, and that was just a pimple compare to what has happened in the last 6 years. I think the shake-out is going to have a profound effect on economies all around the world, but especially our state economy.

Anonymous said...

I've noticed an increase in expensive "never-been-lived-in" rentals hitting Craigslist for Folsom/Eldo Hills.

I guess if you can't find a fool to buy them, you rent them out at a loss??

The Slide Show said...

I am not sure which ballpark is being mentioned, perhaps Raley ?
Well, anywhere close to that I think it takes about 20% off of the August 2005 high to get buyers attention. I am not sure about Natomas but Elk Grove must have that number to get offers for used sub-$400K product. My belief though is other than the good weather, low interest rates and better gas prices, we are just about to see another 15% to 25% correction coming over the next 3 years and a flat time for 5 beyond that. NOW(!) is a great time to sell.

tom stone said...

mike lyon meant the market was on the stable floor.

Gwynster said...

At work today, I went as a real estate agent for Halloween - dressed to the 9s, Lyon name badge, painted on smile, visible cancelled contract and overdue BMW lease payment in my pocket, and a noose around my neck. My favotite prop is a large rubber balloon I found which I left deflated with the word housing in big letters written across it.

The folks in econ loved it and well as all the community development faculty. The college of Bus Management was less thrilled to see me >; )

If I can get to the color copier, I may change the name tag to JTS but I'm not sure how many ppl will get that.

Anonymous said...
This comment has been removed by a blog administrator.