Real Estate Sanity

Real estate sanity is key to settling not only the real estate market but also the overall economic cycle. Coming to terms with what IS happening in the economy and the market, and not what some of us may WANT to happen. An excellent article appears today by Charles Wheelan, PhD on this very topic:


I have had this conversation with scores of people over the past year and a half – trying to get them to realistically look at the market. Trying to get 20% more for your house than the market is willing to pay is just NOT going to work. By doing this, a seller hopes someone foolish enough comes along, who hasn’t looked at any comparable houses or done any research (basically someone who has NO CLUE) who will pay their asking price. Folks this is not going to happen.

In fact, a good strategy is often to under-price a house. By doing this, the seller can create a small frenzy and may even get bid up to their real asking price. This strategy has worked for some of the people I work with in my day job and has worked surprisingly well. A correctly or under priced house gets much more interest than an over-priced house. In fact, considering in this market that over-priced houses seem to be getting NO interest, it behooves a seller to think seriously about how a property is priced.

This strategy creates part of an overall wave of rationality that will eventually return to the market. Jeremy Grantham of GMO in Boston has been quoted saying that (paraphrase) house prices must drop 20% or stay the same for five years so income can catch up. If prices do correct then we can move on to rationality faster. And this has been happening.

As Wheelan says in his article, the faster this happens, the quicker that lenders get a better grip on the market, and the rest of our economy gets settled on proper asset values and a better view on the overall market and what is happening.

Could there be more pain in store? Absolutely. There are many risks that exist – but they are increased by irrationality. If we can all be a bit more rational, then further pain will be handled more reasonably.

Chris Grande