patrick.net

DATA:

http://www.housingtracker.net/old_housingtracker/

My interpretation: inventory always appears to plummet this time of year, particularly right before the holidays. I expect this year to be the same. That being said, the above inventory data does not tease out how much potentially more inventory there would be if it weren't for "gatekeeper" realtors like your example.

Anectodally, a realtor acquaintance in Palo Alto, as well as our former realtor in Boston are doing precisely what you describe, telling potential shoot-for-the-moon sellers not to bother if they don't come in with a realistic price.

Help, I can't sell my McMansion!

HARM,

That leapt off the page for me too. In FL the sentiment among realtors is that the unrealistic sellers are just cluttering up the MLS for the sellers that ARE sincerely trying to price their home "at the market".

Moreover I get the sense that many of these "un-sellers" fully realize that their price is "out there" but are just trolling for a buyer "fresh off the boat" or truly believe the statue they buried in the front lawn WILL work! It's just "throw your hat in the ring" pricing at this point.

The phenomenon is called Phantom Inventory, and it is a well known/studied.

I outlined how it contributes to sticky-price action here.

If you think back to your basic econ 101, there were always just two simple curves or lines, Supply and Demand. Where they meet is the price. In real-estate, there isn't just one Supply or Demand line for a given type of home in a given area.

For existing home sellers especially, there is a great reluctance to drop prices, namely because it is their only point of control. What happens is sellers self-select onto different supply curves, with some willing to drop prices and others not.

Obviously, after buyers quit buying on the higher supply curve, those sellers have supply that isn't really in the market. It's phantom supply, because no one will buy it.

It's like the guy who lists something common on E-Bay for 5x what the other thousand sellers are asking. That guy's item isn't real inventory, it is phantom.

The traditional job of a real estate agent in this case should be to educate sellers about the market, and convince them to move their listing from phantom to real. I think this is one of the things that will help to shake out newbie "me-too" realtors from the true pros. A pro can still make good money in a down market if they are good at getting sellers to price to sell.

un-sellers
Nice!

I wonder how many of these un-sellers plan on re-listing next Spring, when they fully expect the bull market will magically reappear? I wonder how many will return to find an even more crowded field of competing inventory and even fewer qualified buyers, where the only thing selling is cut way, way below their minimum price point.

Our carpenter’s realtor-wife had 31 listings at the end of August. My husband asked ‘how’s it going’ and he replied that she told ALL of them that if they were not willing to lower their price she could no longer continue to list as the marketing/advertising costs were not going to bring in a sale. She now has 5 listings. Guess the rest will wait until spring to get their “price.”

This is why free message boards like C/L is where you will continue to see outrageous prices and in the local paper(which is quite expensive), they will get more realistic.

Psychologically, the reason sellers do this is "Mental Accounting".

People don't think in real terms, and the don't think in total net-value terms. They put costs into buckets in their head, and only consider what's in those buckets. They do not optimize rationally.

A person will buy a stock. It will go up for a while, they'll be happy. They'll register those gains into their mental account even though they aren't realized. Later the stock drops. It drops a lot. They refuse to sell. They want to hold it until it comes back to the high point. After a while they get depressed, it may never come back to the high point. But, it might come back to the original purchase price. They keep holding and eventually sell near the original price. They lost a ton of money in real terms. They lost by not selling much sooner, lower than the high point but higher than the original price. But if you ask them, they'll tell you they "broke even". And nothing you tell them will convince them otherwise. Worse yet, they'll feel they were smart in their course of action, and as they get older they'll force this flawed wisdom down on anyone who will listen.

Weren’t we supposed to get “realistic” dellers by this time of the year?

No, next year.

Allah,

I've tried helping a friend that specializes in Loss Mitigation (loan work-outs). He does it full time and the logistics aren't all that difficult. It's a service a growing number of FB's need so you'd figure, lay up right?

Forget it. Especially when the leads you're getting are in Orange County etc. These people find themselves in disbelief that they're in arrears and are VERY combative when you can get them on the phone! Most tell you; "Oh we're selling, thanks buh-bye yeah bu-bye". WhoTF do they think they're kidding. PERHAPS if they had listed it at a more reasonable price in the first place they wouldn't be in this situation!

Randy H. wrote:

> It’s like the guy who lists something common on
> E-Bay for 5x what the other thousand sellers are
> asking. That guy’s item isn’t real inventory, it is
> phantom.

When Randy posted about “Phantom Inventory” I thought he was talking about the thousands of new homes and condos that are “for sale” but not listed in the MLS and don’t show up in the inventory numbers.

P.S. I’ve been busy and just skimmed the last thread and saw some questions for me. If anyone still has a question repost it in this thread and I’ll try to answer…

"Phantom Inventory" has been added to the Housing Bubble Glossary just below "Mental Accounting"

@Brigadier,

Most un-sellers are still stuck in the "Denial" or "Anger" phases. It will be quite a while before most of them shift to "Bargaining", "Depression" and (finally) "Acceptance".

HARM

Probably best to make sure it doesn't have the meaning to insiders like FAB as he described. I've taken my definition from reading various economic papers & such, where Phantom Inventory is more general than just real estate.

Allah,

That's why we describe C/L as "the place where dreams are FREE!"

When people have to fork over real money it slaps the silly WTF toss your hat in the ring sh@t right out of 'em. The same is true of their relationship with realtors. Since the realtor is footing the bill for advertising why not go for it? Well realtors have reluctantly said, enough! Trust me, this is not a message they want to send but now it's down to survival mode. They have plenty of inventory, what they NEED is buyers!

Randy H,

I don't want to split hairs here but if the condos/TH/lofts are priced away from the market should they be counted out anyway?

RE: “Mental Accounting,” this is exactly what gamblers do at the table. They win a few big hands, yay. Then they end up on a losing streak, go negative a bit. Their "mental accounting" pushes them to keep playing hands, hoping to "get back to where I was ahead." Of course, we all know how that usually ends up.

"but after a year and a half I don’t see ANY price drops here."

LOL, I just received an email from a friend who bought in 2004 (Silicon Valley). He says prices are dropping and he's freaking out. I guess it depends on what side of the fence you're on (seller / buyer).

My other friend has still not received an offer on her Cupertino house, even after reducing the price. She's going to pull the listing in December if it does not sell - relist in the spring.

We sold in July of 2005 (need to downsize) and I thought our timing was perfect (bought in ‘97), but after a year and a half I don’t see ANY price drops here.

As long as you put whatever equity you gained from the sale into an instrument that beats inflation, you're actually ahead. Even if you don't see "ANY price drops here," flat prices equals real losses accounting for inflation.

She’s going to pull the listing in December if it does not sell - relist in the spring.

Aaahh, Spring 2007, the promised land for sellers and FB's, after the winter of our (FB's) discontent. People like her are going to be in for a rude awakening.

DinOR

I don’t want to split hairs here but if the condos/TH/lofts are priced away from the market should they be counted out anyway?

I would. That was FAB's comment. Perhaps in the RE industry they call unadvertised or pocket listings "phantom". From an econ perspective, it is still supply, and not "unreal". It just suffers some information asymmetry.

Brigadier,

Downsizing has perils all it's own (never mind a ridiculously hyper-inflated bubble in the mix to boot!) A great deal of our time frame of ownership for our second home shares an "overlap". It's not easy when you're used to 2,400 sq. ft. and like 3 acres but we managed to fit our lives into a 1,500 sq. ft. rented condo w/1 car garage. (It has never had a car in it).

I feel your pain. While Randy H's definition of phantom inventory excludes listings "out of the money" or "away from the market" what happens when realistic sellers begin to seriously undercut their "support"? I mean some of these people are so far out there their home might as well be on the moon!

@skibum -

Yeah, I know. I know. Her philosophy is that the "housing bust" has happened - which apparently to her means prices come down a few thousand dollars and the market stays flat for a while. We shall see...

I'm sensing unrest among my more recent home buying friends (2003-2005). I'm hearing a lot of "you should get in the market now" and "it's just a lull before prices go back up" and "prices are going up, just more slowly." It's like they are seeking to herd my husband and me - the lone renters.

Brigadier,

There are people buying at the higher prices, which is part of the buyer-side sticky-price action in my linked econ analysis. Buyers are also not on the same curve. The "supply of demanders" on the upper shelf has diminished to almost 0 at this point.

The rest of us are way down here, looking up at those silly sellers wondering when they'll drop their prices. Many just won't. That's fine, enough will so we'll still see price drops. Those who hold will come out behind in the long run, assuming they were originally considering selling for some reason other than whim.

Brigedier,

If you are looking for a condo in the Palo Alto area, just wait until all the new ones come online. (e.g. Vantage by Warmington, the old Hyatt Rickey's site, the old Mayfield Mall site, a couple of other large properties on West Bayshore and East Meadow Drive...) It is a long list. I'm looking forward to the impact of all that new inventory. It should be very interesting for those that wait.

It’s just too hard to sit and wait, epecially when your rent goes up 10% after just over a year.

Patience. Think of it this way - unless you're severely overpaying in rent, a 10% rent increase in the Palo Alto area doesn't even begin to make the cost of renting come close to the cost of "owning" an equivalent home. Condos in Palo Alto that are pushing $800-900K would have to rent for $4-5K/month just to cover PITI, even accounting for the mortgage tax break.

Look on the bright side. You sold at a time when selling was easy (less stress on your part), and by renting for a while, you're engaging in a sort of "temporal arbitrage."

lunarpark,

That's what I have to keep reminding myself. Yeah this sucks (even though most would say our condo is to die for) but I've been on the other side. Me likey here.

Believe it or not even selling into a strong market can be stressful. When we sold our place I had this older realtor call and say she wanted to show our home. She called at every intersection not knowing where to go next. I cleaned frantically while giving directions while on my headset. ONE block from our front door she calls and says her clients didn't like "the area"! Sheesh, yeah true story.

I thought to myself, what a suck @ss realtor. Drives out all this way and can't convince the prospect to go one more block? Because we live out in the country we must have showed it 15-20 times and our first offer was our last (thank God). Can you imagine what it's like now!

@DinOR -

You know, I'm actually enjoying renting. I have to admit it - I'm in absolutely no rush to buy. We're (sort of) newlywed DINKs with no debt and zero worries. I love the condo we rent - in fact, I wouldn't mind having one in our building if prices came down 20% or so. It's uncomfortable to watch some of my close friends go through this bubble, but I also remember having my nose rubbed in their equity over the last few years. So, there's that...

Brigadier,

Lucky you! Seriously, we were in the same place for 10 years (1994-2004) and when we decided to downsize we started a year in advance. Every week we made runs to charities, yard sales and the dump. It was a pain. We really hadn't let the place go but you accumulate stuff. Also, my research was a little premature so it wasn't like we had multiple offers or anything. I'd have to say it's been worth it. Our blood pressure is down and I can focus on business ( blog/chew gum at same time) and our next entry point on our last place! (Daughters are 19 and 22) thankfully.

DinOR,
I have to ask, what was your reaction to the recent roof failure/flooding your experienced as a rentor:
1. I wish I owned my home and had to replace the roof.
2. Its too bad I don't have to look forward to the condo association special assessment to deal with shoddy construction.
3. Buckets are cheap... what is the landlords phone number?

lunarpark,

Uh, yeah the nose rubbing bit eh? I'm less bitter every day and I agree, we like this place well enough to keep it as an office/hideaway indefinitely! If the price "isn't right" I don't mind b/c if we ultimately buy elsewhere the FULL amt. paid here is written off on schedule C. Hurt me!

Ha Ha, DinOR, terrific attitude!

EBGuy!

Damn! LOL! Yeah uh I'll take uh door # 3? No kidding. Since I was at my desk and the leak was in front of my face I just reached into my "personal" drawer and wuh-lah! No probalo.

@Brigadier,

If you were thinking the correction/crash was going to be fully played out in one year, I think you've been listening to too much REIC propaganda. Just won't happen that way --never has, probably never will. We've discussed the "sticky on the way down" phenomenon here to death, so I won't go into that any further. I'd check out the "mental accounting" and "sticky prices" links that have been posted here, though.

If you believe this correction will roughly track previous historical RE cycles, you could expect a bust / boom timeline ratio of approx. 0.6. In other words, if you figure the current boom started in 1997 and ended in 2005, you could guestimate it will take roughly 5 years to correct this time ( 0.6 * 8 = 4.8 yrs ).

Back on topic, here's RealtyTimes' take on the phenomenon of realtors' frustration with sellers:

http://realtytimes.com/rtapages/20061109_frustratedsell.htm

EBGuy,

I felt awful for the one couple that actually owns here. Of the 5 units in the complex 4 are (or will be soon) "repartments". (A term HARM coined to describe condos sold as flips that oddly resurface as rentals no matter how many times you bring them to the river in a burlap sack). The only other non-rental will soon be vacated by the realtor/owner and rented out so she can get long term appreciation. Pffft, whatever. So this poor couple is basically an HOA of........ one. GFL selling LL's on doing major repairs etc.

I have been a regular reader of this blog for a while now and I have reached a state where I am very happy renting. I have savings, flexibility and no unexpected maintenance costs.

So, personally, I don't care about the prices not dropping in the BA. Unless it drops around 50% from last year, I won't even be tempted to buy.

skibum,

The Realt-Whore Times article was revealing.

Last but not least make certain you are working with a MOTIVATED seller or don't take the listing!

Whoa. Did you hear that? Or don't take the listing. Whoa. That should rattle all these "priced to sit" mf'rs to the core man! To the core!

Randy H Says:

> Psychologically, the reason sellers do this is
> “Mental Accounting”. People don’t think in real
> terms, and the don’t think in total net-value terms.
> They put costs into buckets in their head, and only
> consider what’s in those buckets. They do not
> optimize rationally.

Last night I was talking with a friend who told me that his girlfriend has been living with him since the beginning of the year so she put her condo on the market a few months back.

They were asking me if I knew why the condo was not selling for $600K when other condos in her building had sold earlier in the year for as much as $625K.

I asked when she bought the condo and what she paid and she said she bought it in 2003 for $425K.

They seemed shocked when I told her to price it lower than anything else and sell it as fast as possible unless they have solid evidence that Bay Area condo buyers are making 50% more than they did in 2003…

FAB,

That's cold man, cold.

austingal, a troll? Never!

Half the reason folks like us are primarily "entertainment" here is b/c in the BA the amount you're prepared to pay is amount the buyer and seller are haggling over! So we're just pikers. Not even "real" bubble sitters, we're "toy" bubble sitters.

Oh and for your Bubbletainment it's only Nov. and we already have homes sliding off the dunes and into the Pacific. First storm of the year and look ma, no back yard! It's so neat to see the erosion "scallop" out from under the house!