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The Surge In Price Cuts Is Overambitious Seller Reduction

A report from the San Francisco Chronicle in California. “Despite a surge in inventory and price cuts, the median price paid for a Bay Area home in October was $845,000, up 3.7 percent from September and up 9.3 percent from October of last year, CoreLogic said. That’s a healthy increase considering that new listings, active listings and price reductions in September and October were way up on a year-over-year basis throughout the Bay Area, according to data from Patrick Carlisle of the Compass real estate brokerage.”

“Part of that is seasonal, said D.J. Grubb, president of Grubb Co. Realtors in the East Bay. ‘The jet takes off in February, levels off in spring, and we sit at that level through the year. Sellers don’t realize that,’ Grubb said. ‘They think they can get the trajectory in October and November (that they got in the spring). They can’t.'”

“He added that the surge in price cuts ‘is not value reduction, that’s overambitious seller reduction.'”

“The price increase over last year represents somewhat of a slowdown for the Bay Area’s frenetic real estate market. On a year-over-year basis, prices have risen for 79 consecutive months, and had been rising in the double digits for 13 consecutive months until September, when the median price also rose 9.3 percent, CoreLogic said.”

“That may be, and October is always a big month for price cuts as sellers try to close deals before the market slows down from Thanksgiving until Super Bowl Sunday. But the number and percentage of homes with a price cut in October was the highest for the month of October in the Bay Area since at least 2012.”

“Karen Yang, a Coldwell Banker agent in Los Altos, said the market ‘is a little more buyer-friendly’ than the CoreLogic numbers would indicate.”

“One of her clients, Lisa Smith, is about to close on a condo in San Mateo. Smith said she is buying the condo to rent out to her daughter. Smith was hoping to be the only bidder on the two-bedroom, two-bathroom condo — and she was. She offered less than the $950,000 asking price and got it for $922,000. ‘In July (the seller) she would have had multiple offers. She probably would have gotten slightly over asking price,’ Smith said.”

“Yang said the price Smith is paying is what comparable condos in that complex were selling for in early 2017.”

“She has another client who purchased a home in Sunnyvale (with a different agent) in March for about $2.35 million. It was the 16th offer they had made, Yang said. The home was intended for multigenerational use, but turned out to be not right for anyone in the family so they put it on the market. After getting only one serious offer they sold it for about $2.1 million in July. ‘We were worried if they didn’t take that $2.1 million the market was going to slip further. I believe it did,’ Yang said.”

“Lower-end homes are selling much more slowly. In Santa Clara County, ‘our inventory is about three times what we had available this week last year,’ Yang said. ‘Our single-family homes are up about double, our condos and town houses are up 400 percent. I think the absolute cost of getting into housing has gone up so dramatically here that first-time home buyers may be getting priced out of the market.'”

This Post Has 66 Comments
  1. ‘The jet takes off in February, levels off in spring, and we sit at that level through the year. Sellers don’t realize that…They think they can get the trajectory in October and November (that they got in the spring). They can’t’

    Oh yeah DJ, it’s the season. Wait, what’s this?

    ‘On a year-over-year basis, prices have risen for 79 consecutive months, and had been rising in the double digits for 13 consecutive months’

    How could anyone see that statistic and not know something was seriously wrong? And double digit blow-outs at the end has bubble written all over it. Right Seattle?

    1. “How could anyone see that statistic and not know something was seriously wrong?”

      Hey, dumb ’em down, and profit. No Child Left Behind and all that.

    2. For some reason inventory dipped and prices went up a bit in Denver in November. I hope it is a dead cat bounce. It is odd in that everyone seems to be following the heard and it’s as jittery as the stock market right now. It seems that when nothing is selling, everyone just sits and waits for it to fall more. However, as soon as some greater fool finally buys what they were eyeing for a bit, they feel like they have to jump on the next best thing before someone takes it. Literally I see neighborhoods where nothing sells for 30 days, and then as soon as something does sell, 3 more sell in two days. When will this mentality end?

    3. I spent Thanksgiving week in Seattle. It is actually one of my favorite cities and I wouldn’t mind living there. Of course I would want something nice in a great neighborhood for less than $400k. $800k and up? Forget about it.

      1. A quick search on Zillow shows plenty of 3bed 1.5+ bath houses in the northern part of the area (Edmonds, Lynnwood, Mountlake Terrace, Mill Creek) in the 400-500 range.

          1. “First responders in Seattle average 65K. A firefighter/cop couple can easily afford 400k range.”

            That’s 6 x income… yikes!

          2. Um, it’s literally next door. Plenty of people work in a city and live in bedroom communities. I’m not the one who needs to keep up.

          1. Do you even live here? On public transportation it’s maybe an hour plus, it’s rarely more than a 40 minute drive to mountlake terrace.

      1. “Prices had been falling from their spring highs in Seattle and parts of the Eastside, but the market had still been humming along on the outer reaches of the region until recently; now, prices are falling on a month-over-month basis just about everywhere.”

        This is how it went bust last time, too. The lower priced areas which were driven up by speculators who sold in the higher priced areas and bought in the cheaper ones didn’t start crashing until those feeder markets crashed. Once the speculators and equity locusts couldn’t sell in those higher priced areas, the contagion spread outward as the spigot was shut off.

        You get weird distortions where you see prices in less desirable areas which are almost on par with prices in desirable areas and people think, “why would I pay that out here when I can buy over there?” Then it is over for the cheaper areas and they crater the hardest of all, as their demand completely disappears.

        1. You nailed it. I look at updated or well kept 3/2 and 4/3 homes in the “nicer” areas around my neck of the woods selling for a couple hundred thousand than moldy mushroom growing 2/1 shacks. Granted non are flying off the shelves but what I’m noticing is higher end coming down and the lower end staying put unsold.

        2. Totally agree. Speculation has a lot to do with it too. Cheaper areas are re-designated as “up-and-coming” and assumed to have more upside potential than established areas. Mania thinking, looking for the next big thing. One of the clearest bubble indicators last time was when prices in Williamsburg, Brooklyn (which was gentrifying but not there yet) went higher than identical or nicer apartments in good neighborhoods in Manhattan.

      2. “No other city in the country came down more than 0.3% and Seattle’s decline tripled San Diego’s rate.”

        Wow, that’s really terrible.

        And it seems to imply that San Diego prices are falling, too. Woohooo!!!

  2. ‘purchased a home in Sunnyvale in March for about $2.35 million. It was the 16th offer they had made, Yang said. The home was intended for multigenerational use, but turned out to be not right for anyone in the family so they put it on the market. After getting only one serious offer they sold it for about $2.1 million in July’

    This is a good example of speculation. Sure, they made up a story about using it, and maybe they even believed it. But their true motivation was this flip was going to put a cool half a million in their pocket for doing nothing.

    1. Odd they took a loss in July which was at the top of the market for sillycon valley. Looking back at the sold homes in that timeframe July/August are showing overbid months. They obviously over paid back in March but lucky to get out when they did. Definitely specuvestors not the “multigenerational” buyers they claim to have been.

      1. I was thinking that “multigenerational use” meant they viewed it as such as great investment, their family would keep it in trust for ever, especially when they later say it turned out to be not right for anyone in the family so they put it on the market, which seems to imply they were at least partially purchasing it for someone else’s use and not their own, but it is an odd term with ambiguous meaning. Reminded me when my mom bought a vacation home for the family without checking with the family first, and was upset that no one wanted to use it. She lost 50k on the deal. How dare her family want to see different parts of the world on their few vacations, rather than stay at the same place someone else picked out every single year with extended family.

        1. File also under: timeshares. There is a lady in my area who has made a fortune buying out people’s timeshares on the cheap and then reselling them. I think it is called something like “dumpyourtimeshare.com”.

    2. “turned out to be not right for anyone in the family”

      Don’t you guys just hate it when you accidentally buy a $2.3 Million shack just to figure out it didn’t fit for your lifestyle and no one liked it?

      1. I agree. It seems odd they didn’t check to see anyone actually wanted to live in the house first. I can only assume it was part of some Asian family money laundering scheme or something, and they didn’t even preview it. Otherwise, their statements don’t make sense to a rational human being.

        1. Bingo! I would wager my money that we will soon see headlines regarding “withdrawal of foreign specuvestors money laundering crashes RE market” or something along those lines. My hope is they all try to pull out at the same time.

    3. The home was intended for multigenerational use, but turned out to be not right for anyone in the family so they put it on the market.

      Am still trying to wrap my mind around this. Paying $2.35 million for a shack, then deciding it’s “not right for anyone in the family”? This must be an impetuous clan that has no idea what it wants and is prone to impulse buys and poor financial decisions.

    4. intended for multigenerational use

      I suspect this means they used Grandma’s money for the deposit, which has now vaporized.

    5. “It was the 16th offer they had made, Yang said.”

      I’m sure Yang is an American, and his income was, too, right?

      1. You just have to read between the lines. Take the comedy out of it and then pay attention to the actual numbers which are generally true. Come to think of it, it’s pretty similar to reading the expert reports for NAR or the MSM regarding real estate minus the humor

      2. Microsoft isn’t laying off anyone

        Interesting. It was in the “news” though, within the past year.

        1. Yeah, a year ago, but right now MS is doing fine and not laying anyone off. The big things affecting the Seattle area are the feds looking at cash offers through LLC, Amazon not hiring as many people, and their stock losing value quickly taking away a good chunk of wealth used for down payments.

  3. “Yang said the price Smith is paying is what comparable condos in that complex were selling for in early 2017.”

    Another knife-catcher “client” vastly overpays.

    Smith was hoping to be the only bidder on the two-bedroom, two-bathroom condo — and she was. She offered less than the $950,000 asking price and got it for $922,000.

    You’re quite the clever one, Lisa. Pay no heed to the approaching rumble of the express train to Schlongville.

    1. I wonder what her daughter would pay in rent if she just went out and rented something? Have you guys heard of the New York Times buy versus rent calculator? A big negative for buying is short term hold. You have to pay 5% to sell.

  4. Oh dear. The lemmings of Hong Kong who flocked – operative word – to “invest” in insanely overpriced sky boxes in the first half of 2018 are now well and truly schlonged as the pace of Hong Kong’s cratering real estate is accelerating, with prices plunging 2.4% last month alone.

    I suspect the stamping of little feet will soon be reaching a crescendo.

    https://www.scmp.com/business/article/2175738/hong-kong-home-prices-see-24-cent-decline-october-third-consecutive-monthly

  5. In Santa Clara County, ‘our inventory is about three times what we had available this week last year,’ Yang said. ‘Our single-family homes are up about double, our condos and town houses are up 400 percent.

    Gosh, Ms. Yang, to this hayseed on the HBB, this looks an awful lot like a bursting housing bubble.

    1. Ms Yang is being pretty honest. She admits to the inventory situation and she admits prices are declining. The realtor job changes with the markets. Now she is likely fighting for buyers and talking down sellers. Time was when realtors were fighting for sellers and talking up buyers. We don’t have realtors banging on our doors anymore asking if we want to sell the house.

  6. With the talk on the blog and obvious changes in market trajectory, I decided to pull out my copy of The Big Short last night. Haven’t watched in a while. Last few times I watched it was like a history lesson in school. However, this time it felt like a warning., like a soon to be deja vu. Really felt weird. If you have it, go watch and see if you feel the same.

    It was largely because of the cavalier attitudes of the ancillary characters right down to the stripper who quotes the mortgage broker about the market as being in a “gully” and the realtor’s lackey assistant saying “this market won’t last” as a way of pushing Mark Baum to buy.

    This kind of reminds me of the SF realtor’s comments in this article about sellers over reducing. The 3 main parties in the movie could see through the smoke that was obscuring the vision of so many others. Sound a bit like today? We are just perhaps today at slightly different point on curve.

    Go back and watch and tell us if you get the same feeling. One day soon, I believe, we will see a major notice of a large bank or non bank lender failure and then we will all know we have arrived. Then see how many “over reductions” pop up.

    Regards

    1. I’m thinking the current crop of GSE-funded non bank subprime lenders will blow up, and the GSEs will need a new round of bailouts from somewhere to make it all right again.

      I suppose we’ve all seen this movie before…

    2. It was largely because of the cavalier attitudes of the ancillary characters right down to the stripper who quotes the mortgage broker about the market as being in a “gully” and the realtor’s lackey assistant saying “this market won’t last” as a way of pushing Mark Baum to buy.

      I just scored the blu-ray on ebay a couple days ago for $6 shipped, so I’m right there with you. This movie and Too Big To Fail are both up there on my short list of ‘documovies’ I love. And prescient as hell for those of us willing to learn from history.

  7. I just got this in an email:

    Newly Priced | Open Sunday

    16739 BOLLINGER DR, PACIFIC PALISADES, CA | $3,795,000

    I looked it up:

    https://www.zillow.com/homedetails/16739-Bollinger-Dr-Pacific-Palisades-CA-90272/20542286_zpid/

    For Sale
    $3,795,000
    Price cut: -$200,000 (11/26)

    11/26/2018 Price change $3,795,000 -5%
    10/27/2018 Listed for sale $3,995,000 —
    5/19/2018 Listing removed $23,000 —
    4/9/2018 Price change $23,000 +24.3%
    1/15/2018 Price change $18,500 -26%
    3/31/2017 Price change $25,000 -16.7%
    2/9/2017 Price change $30,000 -14.3%
    1/12/2017 Listed for rent $35,000 —
    4/26/2016 Sold $3,340,000 -4.4%
    2/25/2016 Pending sale $3,495,000 —
    1/14/2016 Price change $3,495,000 -5.4%
    11/13/2015 Price change $3,695,000 -5.1%
    10/5/2015 Listed for sale $3,895,000 +165.9%
    1/17/2014 Sold $1,465,000 +4.7%
    1/15/2014 Listing removed $1,399,000 —
    1/4/2014 Pending sale $1,399,000 —
    12/31/2013 Listed for sale $1,399,000 —

    1. Do you get the feeling that the Rent Zestimate on this place turned out to be way overoptimistic? Who rents for north of $20,000 a month?

    2. “10/5/2015 Listed for sale $3,895,000 +165.9%
      1/17/2014 Sold $1,465,000 +4.7%”

      There’s another interesting detail. What happened to the shack to make its value increase by 165.9% in just over one year!?

      1. What happened to the shack to make its value increase by 165.9% in just over one year!?

        A Greater Fool came along. Who is now panicking as he realizes he overpaid and his dreams of raking in a big speculative windfall just went up in smoke.

  8. Does it seem like there have been a lot of recent articles about hapless suckers who lost their @$$e$ buying $hitc0in?

    I Bought Bitcoin When the Price Was Soaring. Here’s What I Learned
    By Alessandra Freitas
    Dec. 1, 2018 8:00 a.m. ET
    An employee inspects machines for the production of bitcoins.
    Photograph by Olga Maltseva/AFP/Getty Images

    A year ago, Bitcoin was practically a foreign language to me.

    Then I watched an episode of Grey’s Anatomy in which the hospital featured in the show was attacked by a group of hackers, who demanded 4932 Bitcoins in ransom (worth $20 million in the setting of the program). After doing some research and consulting with friends who had bought Bitcoin, I thought, well, maybe I should put some money on it, too. That was my first investment, made before I really understood anything about finance.

    https://www.barrons.com/articles/is-bitcoin-dead-and-other-questions-1543669201

      1. “…$17,000 worth of cryptocurrency stolen.”

        Hundreds of billions of dollars more went poof over the past year. Where did all that fiat money that was used to purchase Bitcoin and other cryptocurrencies end up?

        1. Where did all that fiat money that was used to purchase Bitcoin and other cryptocurrencies end up?

          Same place that the money used to speculate in all the bubbles and scams (oil futures, solar, wind, Tesla, land, houses, ghost cities) went. First it bids up the price of Tortillas, then it goes poof.

    1. What a gem, thanks for posting. This woman bought bitcoin a year ago as, “my first investment, made before I really understood anything about finance.”

      Wait for it…

      “Now I work as Engagement Editor at Barron’s and understand a lot more about money, markets, and the nature of financial speculation.”

      That’s about as funny as the FB in Alabama who became a finance writer for the WSJ. Falling for a ponzi scheme is now a pre-requisite for working in the financial media.

      1. Those are the perfect types for disseminating the misinformation that lures greater fools into handing over their hard earned cash to buy into Ponzi financial schemes.

        1. Absolutely. These are the people who are supposed to be holding power to account? That WSJ guy was dazzled to find himself in the company of the very finance execs who duped him. This woman’s “journalism” consists of reposting people’s comments from Reddit and Twitter that Bitcoin will make it back some day. Hard to believe Barron’s and the WSJ get away with charge subscribers for this kind of quality analysis.

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