For instance, say we get a prolonged stand-off now, with the bulk of owners and some investors refusing to lower their prices or accept that their property is worth less than they think it is or thought it was. The real losers then become Estate Agents, who rely on activity in the market for their commission and livelihood.
In this stand-off/stalemate scenario, does it become logical then for EA’s to say that house-owners need to accept the market has crashed and their properties aren’t worth - and will not be worth anytime in the immediate future - what they thought it was? Will this kind of shock & awe tactics be required to shake sellers from their slumber and generate the kind of activity again on which the VI’s feed?
Who will be the first VI to suggest slashing prices? It will surely happen if it becomes the next logical move for EA’s or banks. What happened elsewhere (Sweden, Neths, Japan, UK)?
Look to the United States for guidance, all the property and banking VI’s are maintaining the line that all is well and that the bottom has been reached, when in fact it has all gone very, very wrong with the first wave of defaults coming in this year and the next wave on the way. The lending practices have tightened significantly and when the most marginal buyers can’t get credit, the not-so-marginal sellers can’t make a sale. If they can’t sell at anticipated prices, the value of their collateral is called into question, so they can’t borrow either. Then, the whole structure of credit begins to dry up . . . . .
My advice is watch what the VI’s do, not what they say.
When I talk to property bears or the soft landing mob there is ususally this attitude of …‘fine well if a crash occurs it will be the fault of those nasty people talking down the market and this country will be on it’s knees, and it will take 25 years to rewcover and everyone will be on the boats to England/America within 5 years’…
Real plagues of locusts stuff. I don’t believe any of this will happen, or that this ‘armageddon’ is a reasonable excuse to keep ramping property costs up thereby hurting the economy’s competitiveness.
But don’t underestimate the mania on the way down just as it was on the way up. A lot of these EA’s haven’t seen a bad market and will overreact I think.
The old saying is that something is worth what someone is willing to pay. That’s not strictly true. It’s worth somewhere between what someone is willing to pay and what the seller is willing to accept.
Don’t forget that if the people who hold the assets aren’t willing to sell them below a certain price, and can afford to keep them, then it’s as valid to say that the buyers are the ones refusing to accept that properties are worth more than they think they ought to be.
The stalemate happens when both buyers and sellers are unrealistic, and both stick to their guns.
surely it is only worth what someone else is willing to pay for it? If I have a house that I think is worth a million but the most egar buyer think it worth 500k then I’m only kidding myself that it is worth more than 500k. It might be worth waiting until the most egar buyer comes along (others may have offered 450k) but if there is no-one out there willing to pay 1 million then it is not worth one million.
It’s a two way street, the buyer has to find a seller willing to sell for 500K. if the most eager seller won’t go below 1 million then the buyer is kidding himself thinking the house is worth only 500K.
Its only worth how much money you or someone else can get it for.
If the people who hold the assets are not willing to sell them below 1 million then they effectively become the most eager buyer.
If houses aren’t selling despite the best efforts of both buyers and sellers then there’s a gap between the most eager buyer and the most eager seller. True value is somewhere it between.
When a market begins to turn either up or down that gap tends to be greatest.
I guess it depends on how you define “Worth”. As a seller to me Worth is either defined by what I can do with an object if I keep it or what I can get for it if I sell it. What I can do with it is hard to put a money value on But what I can get for it is easier to establish.
To find out what I can get for the object I try and find out what others are willing to pay for it. I may feel that the first few people’s offers do not reflect the best price I can get so I wait a little longer. Sooner or later every possible buyer will have seen the object and eventually they will have to make their best bid. To me the “what I can get for it” value has been established by the highest bid of the most egar bidder. Saying it is “worth more” than what the most egar bidder is offering is then contradicting the “what can I get for it” definition of “worth”.
Is there another definition of “Worth” I’m missing here? There may be?
The problem with that logic is someone always has to sell, for the last 10 years or so if you had to sell eg job overseas, lost job, inherated by several siblings who just want the cash, ect, the EA gives you your asking price and the bids start there, hurray! These days if your sitting on no. 22 waiting for 400k (saying “I don’t have to sell”) no. 15 went for 375k and no. 40 is on the market for 380k then stalemate looks like a one sided dynamic you have a seller who won’t shift down and a buyer who won’t look as the prop that is now out of step with the ‘market’.
In recent years the feeling among in 25 - 35 age bracket was “WE HAVE TO BUY NOW!” That sentiment has changed (definatly from what I can tell) and there seems to be an absence of people who feel they have to buy IMO. I base this on sentiment I pick up from peers in that age group and the ever rising prop inventory. Also the rise apparent rental demand bolsters the arrgument that the market is showing sighs of people looking at renting at 3-4% of ‘market value’ with no major maintinance and banking what the difference to a mortgage is a winning financal move. Just see what a 7% return gets you on regular saving of 1k PM on cnnmoney.com it comes to â‚¬1.8m or about â‚¬620k in todays money, ie from a life style point of veiw thats a no brainer. Also it’s somthing of a given that wage and general inflation will reduce the real cost a mortgage but so will the cost of the â‚¬1k PM and if the market crashes and rates are good you can always buy the key with this stratagy the 1k PM savings it’s your insurance policy.
True, but even still the true worth is only known when it sells. Until it sells all we know for sure is that it’s worth less than the ask, and more than the offer. As long as the seller is rejecting bids then the house is worth more than the bids (to the seller).
The problem happens when you’re between two markets, which I think Ireland still is to some extent, when the gap between the buyers and sellers widens and the true value is somewhere between.
Aside from selling a property the only true way to determine it’s value is to find out how much a bank is willing to lend on it.
Unless you have a sale or a true independant decision such as a bank putting up hard cash, you’re back to picking a point somewhere between the bid and the ask.
Incidently in the US sale prices for properties are a matter of Public record. Makes researching easy, but if you are negotiation with a developer who has to shift a lot of property it can be difficult. If he accepts a low offer, he has set a public precedent that he has to overcome on all future sales.
On a unrelated note, I and I am sure most of you have noticed a marked increase in property advertising (The entire front page of the Morning Herald this morning for the Paddocks). I have also noticed a lot more articles talking up the property market ‘slow down’ or even the crash. I am starting to think the media is seeing the value of negative property news…