Disconnect Between Buyers and Sellers: Explained through a Curbed Comment Feed

by Joe Stampone on April 21, 2009

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As we are all well aware of, there are countless issues with the residential real estate market. Vast overbuilding and lack of available credit, coupled with a  high unemployment rate and poor consumer confidence has to led to a sharp decline in housing sales and values. However, one of the major problems with the housing market that receives less attention, is the disconnect between buyers and sellers. I was reading an article on curbed.com covering TechCrunch’s Editor Eric Shonfeld’s attempt to sell his Brooklyn apartment via Twitter. Interested in what people thought about his unique marketing effort, I decided to scroll through the 30+ comments following the post. To my surprise, what I saw was not a discussion about Twitter and social media for business, but rather an argument between buyers and sellers on the value of the apartment.

Without getting too deep into the details the apartment is a 2-bedroom located in Cobble Hill, Brooklyn and is asking $979,000. Whether it’s overpriced is irrelevant, what I want to focus on is the perception of buyers. Let’s examine a few of the comments:

comment-1

This may just be a simple attempt at humor, but it clearly shows that buyers believe that many properties are grossly overpriced.

comment-2

There are a couple of points to take away here. First, he believes that most apartments are listed 50% higher than what people are willing to pay for them. Next, he states that the real estate crisis will not come to an end until sellers begin to price more realistically. As the economy worsens, there is a new wave of sellers joining the market, the seriously distressed. A new group of sellers that does not have the option to hold is gathering on the horizon. This group of sellers must sell at whatever price the market will bear. This will break the logjam that has stalled transactions and lead to even lower pricings.

comment-3

This shows that buyers clearly expect the market to continue to decline. With this outlook in mind, buyers have no incentive to pull the trigger. They have little pressure to buy so early into a down market and would rather be too late than risk buying too early.

comment-4

comment-5

Again, this just further exemplifies the buyers outlook on the market. Some believe prices will return to early 1990′s levels. Although I believe this is ludicrous, it just goes to show the buyers perception of the market. The second comment references the purchase price in 2002. I think this may be a more realistic indicator of the true value.

comment-6

This comment hints at when this particular buyer believes the market will bottom, 2013.  Again, shows the buyer believes the market is in a precipitous decline.

comment-7

This commenter makes a good point. Many listings advertise 20% or 30% price cuts, however this means nothing if the property was grossly overpriced to begin with.

This comment stream highlights the typical disconnect between buyers and sellers. I’m interested to see how the market reacts as this new wave of sellers enter the market. One thing not taken into account in any of the comments is public support and attention from policy makers. Much of the federal stimulus has been focused on housing. No one really knows the precise effect this stimulus will have on the market.

What are your thoughts on these comments?

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  • hal

    your hypothesis is fatally skewed by your test case.

  • joestampone

    Danny,

    Thanks for your comment. This is merely my personal opinion derived from an observation. I welcome you to expand upon your comment by explaining your points of contention. I look forward to further discussion.

  • Freddy

    Hi, I made more than one of those comments that you quoted.

    I would like to ask why you find it “ludicrous” that prices will return to early 1990s levels. After adjusting for inflation of about 1/3 I think that is a reasonable expectation.

    You may be right but I would like to know WHY you think it is unlikely.

  • joestampone

    Freddy,

    Thanks for the comment. As you can tell, the main point of the post was to highlight the general disconnect between buyers and sellers, it was not an attempt to predict how low housing values will fall. Maybe “ludicrous” was too strong a word. I will do some further research and get back you on my prediction of future housing prices.

  • Dorsia

    One thing not taken into account here is the fact that (in my opinion) few of the posts were made by actual or potential purchasers as this blog assumes. I don't believe that their opinions can be attributed to purchasers who currently have the resources to and interest in purchasing NYC real estate. Many of them are instead living in a fantasy land where their posts reflect what would have to happen to push them into a position where they could be potential purchasers. This is not to say that sellers don't have some reality checks to go through in the future, but to suggest that the posts reflect the opinions of people who are qualified purchasers but remain on the sidelines solely because of a disconnect with sellers over pricing is inaccurate.

  • joestampone

    Dorsia, thanks for your comment. You bring up a very good point. First, the post did not imply that transactions are not occurring simply because sellers are over-pricing, but rather there is a disconnect between both sellers and buyers.

    You're right, I don't know the back ground of the commenters or even the typical Curbed reader. I made the safe assumption that the readers are somewhat educated about real estate. Many whom I assume are brokers, buyers, or people curios as to what is going on in their neighborhood.

    Although this may not be the case, there is no doubt that there is a disconnect between sellers and buyers.

    If there is anyone out there actively looking to buy in NYC, I welcome their comments.

  • Freddy

    I'm not a potential buyer, I already own an apartment and am not planning on moving. Even if I did I would not benefit from an increase or decrease in prices because I would basically be exchanging one apartment for another.

    But I am not living in a fantasy land about current prices still needing a huge correction. All you have to do is look at a graph of real estate prices and earlier cycles and compare the NYC market to other markets. Compare historical sale prices to rent and the ratio of income to cost to purchase.

    To think that a thirteen- or fourteen-year bull market in real estate has completely corrected in a year or two is unrealistic and ignores history and defies common sense.

    Based on the last down cycle, it will be at least five years before prices bottom and scrape along before moving back up in a sustainable manner. That doesn't mean that prices will go straight down without leveling off or ticking up. Take prices per square foot at the last bottom and adjust for inflation. Throw in whatever adjustment you want to make for whatever factors you think are important. That's the kind of price you should be looking for, not 20% off the peak.

    Let's don't even think about what would happen if the low interest rate environment were to change.

  • hal

    your hypothesis is fatally skewed by your test case.

  • http://www.astudentoftherealestategame.com/ Joe Stampone

    Hal,

    Thanks for your comment. This is merely my personal opinion derived from an observation. I welcome you to expand upon your comment by explaining your points of contention. I look forward to further discussion.

  • Freddy

    Hi, I made more than one of those comments that you quoted.

    I would like to ask why you find it “ludicrous” that prices will return to early 1990s levels. After adjusting for inflation of about 1/3 I think that is a reasonable expectation.

    You may be right but I would like to know WHY you think it is unlikely.

  • http://www.astudentoftherealestategame.com/ Joe Stampone

    Freddy,

    Thanks for the comment. As you can tell, the main point of the post was to highlight the general disconnect between buyers and sellers, it was not an attempt to predict how low housing values will fall. Maybe “ludicrous” was too strong a word. I will do some further research and get back you on my prediction of future housing prices.

  • Dorsia

    One thing not taken into account here is the fact that (in my opinion) few of the posts were made by actual or potential purchasers as this blog assumes. I don't believe that their opinions can be attributed to purchasers who currently have the resources to and interest in purchasing NYC real estate. Many of them are instead living in a fantasy land where their posts reflect what would have to happen to push them into a position where they could be potential purchasers. This is not to say that sellers don't have some reality checks to go through in the future, but to suggest that the posts reflect the opinions of people who are qualified purchasers but remain on the sidelines solely because of a disconnect with sellers over pricing is inaccurate.

  • http://www.astudentoftherealestategame.com/ Joe Stampone

    Dorsia, thanks for your comment. You bring up a very good point. First, the post did not imply that transactions are not occurring simply because sellers are over-pricing, but rather there is a disconnect between both sellers and buyers.

    You're right, I don't know the back ground of the commenters or even the typical Curbed reader. I made the safe assumption that the readers are somewhat educated about real estate. Many whom I assume are brokers, buyers, or people curios as to what is going on in their neighborhood.

    Although this may not be the case, there is no doubt that there is a disconnect between sellers and buyers.

    If there is anyone out there actively looking to buy in NYC, I welcome their comments.

  • Freddy

    I'm not a potential buyer, I already own an apartment and am not planning on moving. Even if I did I would not benefit from an increase or decrease in prices because I would basically be exchanging one apartment for another.

    But I am not living in a fantasy land about current prices still needing a huge correction. All you have to do is look at a graph of real estate prices and earlier cycles and compare the NYC market to other markets. Compare historical sale prices to rent and the ratio of income to cost to purchase.

    To think that a thirteen- or fourteen-year bull market in real estate has completely corrected in a year or two is unrealistic and ignores history and defies common sense.

    Based on the last down cycle, it will be at least five years before prices bottom and scrape along before moving back up in a sustainable manner. That doesn't mean that prices will go straight down without leveling off or ticking up. Take prices per square foot at the last bottom and adjust for inflation. Throw in whatever adjustment you want to make for whatever factors you think are important. That's the kind of price you should be looking for, not 20% off the peak.

    Let's don't even think about what would happen if the low interest rate environment were to change.

  • http://www.facebook.com/people/Ema-Watson/100000605020869 Ema Watson