patrick.net

re sticky, housing also suffers from a 'ratchet effect', i.e. sticky in one direction only. one reason for the ratchet effect is the high transaction cost of property transfer, which can be added to the nominal book value. e.g. if someone bought a place for $300K and had to pay $10K in stamp duty and $2K in lawyers fees (and possibly buyers agents fees and other closign fees), they tend to want to recover at least $312K when they sell, especially in the case of flippers or other short term holding patterns. doesn't everyone agree on the basic conception of sticky here tho, i would've thought it was an intuitive jargon word implying price viscosity...

I expect September’s record for the biggest recorded nationwide median YOY fall to last precisely one month.

@ajh,
Oh, but you're forgetting the NAR's best weapon in the numbers-manipulation game: using "revised" numbers, as in, The YoY decline compared to October 2005's REVISED median is... let's see what those liars come up with next.

George,

Well they haven't made it down to the studio yet but Tom Stevens and Lawrence Yun are already putting a positive spin calling it the peak for inventory build up! Rally?

I still can't get my mind wrapped around this thing. This is huge, anyway you slice it. Oh, btw Allah, I was born in 1959 but it just makes this whole situation that much more unreal for me. Let's call a spade a spade, this is a free fall!

A couple of real, referenced, definitions of the apparently controversial word "sticky", as it applies to economics:

The Economist

From Mankiw et. al.

The best irony of all this that gives me a smile is that, in the *real world*, _all prices are sticky_, in every market, period. That's because there are no theoretically perfect markets. Arguing that prices won't be sticky this time is the same thing as saying the real world is irrelevant, and pure theory tells how it will go down. That at least one person here doesn't appreciate that irony is the best entertainment of all.

Randy H,

Judging by today's numbers this market is looking about as sticky as........ somebody help me out here!

DinOR

Sticky just means that prices aren't readjusted all the time, in real-time. Seeing big drops in house prices actually proves price stickiness, not disproves it. That's the irony; a basic misunderstanding of the concept. Non-sticky prices would mean there wouldn't be any big, instant drops.

Judging by today’s numbers this market is looking about as sticky as…….. somebody help me out here!

@DinOR,

Sorry man, the only analogies I can come up with are uncouth and involve KY jelly.

Randy H,

O.K, I can go along with that. By that definition the final "closing price" would be determined by the LAST document signed at the title office. So we started the process 2 weeks ago at 750K with a known quantifiable "rate of descent" and would have closed at 739K but the escrow agent got held up in traffic so it's now $738,750.

Thank God for the seller she didn't call in sick that day!

@allah,
I think what Randy's trying to argue is this. Using a mechanical analogy (KY jelly aside), think of the market as a mechanical piston. If friction (stickiness) is low (lubricated), it slides smoothly back and forth without difficulty. If friction (stickiness) is high, you'll have to force it to move along it's shaft, and it gets stuck at points along the way. But once you get it going, there are relatively small movements that are herky-jerky as the piston slides along its path and gets stuck in various positions.

God, that's a nasty analogy if you think about it! Lubrication, shaft, stickiness, it's all there!

skibum,DinOR

Exactly on point. One of the factors of the real definition of stickiness is "Nominal Contract Performance". That's the gum in the piston shaft. It's not like the escrow agent has a "house price ticker" on her Blackberry, as she rushes through traffic trying to close the deal on the "housing spot market". Instead, there is a signed contract for price which then locks that price through the entire process, be it hours, days or even months. That closing price will always be *backwards looking*; either too high or too low, given what new contracts _starting today_ go for.

@SF Woman,

I've definitely mentioned it before, but I really do see Boston as a leading indicator in the RE collapse of the "glamor", er, bubble cities. My "sources" back in Boston tell me the RE market is still dead in the water. There's another surge of hope for a Spring 07 bounce, but that's only going to lead to disappointment, I think.

skibum,

LOL! Yeah until Randy H straightened me out I was thinking "buzzard puke on a door knob" or "owl sh@t on a mirror"?

I think I'm starting to conceptualize where Randy is coming from and it (in my mind anyway) centers around a "known and quantifiable rate of descent". Since we aren't in an economic backdrop that permits us to say, "Median price decreased 9.7% YOY so divided by 365 that translates to a .0265% a day decline in sellers home value".

I think that IS what happened but we could only determine that THIS morning and in retrospect at that!

RE prices ARE sticky! However; given what we now know this is the first data we've seen that should cement in seller's minds just what the consequences are for "taking it off the market and re-listing in the spring"?

"Nominal Contract Performance"

Wow! How many times have we heard someone lament being the first tenant in a new office bldg. or strip mall?

"Yeah, they stuck it to me. I was promised all this foot traffic and for a year I was the ONLY guy at this location! NO coincidental business at all! I'm lucky I survived. Now these "new" guys are feeding off of ME and their leases are MUCH lower. Yeah, they stuck it to me".

Ok, you win Allah. You believe Adam, a San Francisco based business consultant, is the Editor in Chief of the highly intelligent and very enthralling San Francisco real estate blog SocketSite and a member of the Real Estate Blog Squad.

And I'll believe N. Gregory Mankiw

What is a "blog squad"? lol

@Randy,
I just hope Mankiw isn't associated with his other Crimson colleague, Nicholas Restinas, that REIC lackey.

words like sticky have a broader meaning than when they refer specifically to RE.

Thanks for clearing that up. So in RE the notions of economics don't hold. I'll accept that. Then we shouldn't be invoking any economics at all when trying to understand the RE market. Let's use darts. I'll agree darts are probably more accurate (unless you're talking about my dart game).

skibum,

Mankiw isn't a RE lackey. Many criticize him for being a Reagan-style Republican lackey, being he is the anointed saint of neoclassical economics, and thus the author of many texts invoked by supply-siders.

I could have referenced many others from less notorious universities, like Pindyck. If I recall he discusses price stickiness in purely micro-economic terms, using empirical data from various markets to prove the theory. I think it was he who tackled markets people thought as "not sticky", like currency FX, and then showed they are in fact very sticky due to "non-maximizing behavior", which Mankiw would call irrational, but behavioral economists/finance would call "the real world".

Allah,

You know, not everything of value is Google-able; in fact the most valuable stuff you actually have to read in a book or pay for a digital license.

I already referenced everything. But for extreme emphasis:

N. Gregory Mankiw, _macroeconomics_, fifth ed. (c)2003.; Worth Publishers. ISBN: 0-7167-5237-9. p515, table 19-2.

Elaborations on specific markets:

"On Sticky Prices", N. G. Mankiw, Chicago: University of Chicago Press, 1994), pp117-154..

@allah and Randy,
To end this pissing contest about Mankiw's stickiness credentials, here's a link from Randy's own link to Mankiw's page at "that school in Cambridge":

http://www.economics.harvard.edu/faculty/mankiw/papers.html

All his papers listed are pdf downloadable. Upon my untrained cursory read, there are a few opining about price stickiness vs. information stickiness. The latter does seem like an interesting concept - that economic decisions are made based on old information (lagging indicators, slow dissemination of data across the economy, etc). Cool stuff.

DinOr says

"To help me put this in perspective 1970 was the year I discovered that not all girls were “icky”. "

Or are they just "icky" on the way down?