A long-time friend just finished making cosmetic improvement to his mother's home because she's selling it.
He proudly showed me each room, and I was impressed with his handy-man skills.
Then my friend told me the price his mother would be happy to get for the place. But then he said that her real estate agent wants to price it 25% above that amount for "wiggle room"!
I told him that "wiggling" too high means some potential buyers might not make an offer at all, and that an asking price closer to what his mother wants may be the best way to go. He nodded his head "yes," but said the agent wants to try selling at the higher price for three months. He told me he'd let me know when the house sells, so we'll see.
I couldn't help but wonder if that real estate agent is still living in the days before the housing bubble burst.
My newspaper recently ran an article about a local high-profile person who lost his job. They quoted him saying he plans to start over as a real estate agent.
This brought to mind some other people I knew, who left their first profession a few years ago to pursue real estate. The fellow quoted in the paper apparently still had those days in mind.
In real estate -- as in stocks -- the psychology of big money outlasts the opportunity. In the case of real estate, it's been five long years since prices topped.
And no doubt, I'm sure there are many sellers who wait hopefully for the real estate market to bounce back. But they may be waiting longer than they anticipate:
"According to Fiserv...a financial analytics company, home values are expected to fall another 3.6% by next June, pushing them to a new low of 35% below the peak reached in early 2006 and marking a triple dip in prices."
CNNMoney, October 31
The same article goes on to say that more foreclosures and sustained high unemployment will work against the housing market.
And real estate website Zillow just reported third quarter numbers: 28.6% of single family homes have negative equity. That's up from the second quarter.
Will more home owners slip into negative equity in the months and years ahead? Well, here's what the second edition of Conquer the Crash stated (p. 157):
"At the bottom, buy the home...of your dreams for ten cents or less per dollar of its peak value."
As you know, real estate values have already taken a major tumble in many locales; that decline is part of a larger deflationary trend.
You can read our latest analysis in the "Economy and Deflation" section of our recently published November Financial Forecast. Moreover, get our latest thinking on stocks, gold and silver, bonds, the U.S. dollar and more.