How Low Will Home Prices Go?

Over the past few years a standard single family home around here would be on the market for approximately 4 hours. Never even got the realtor sign in the ground. When we were looking three years ago I had a real estate manager friend call me before the houses would even hit the MLS system. It was so competitive we just wanted a shot at it before everyone and his brother hit the same driveway. Turned out my tipster didn't even help because the homeowner selling, and all their neighbors, had already tipped off a few dozen others before I ever received a call.

Lately everything has changed. Totally.

For example, a neighbor has been trying to sell for 6 months, has lowered the price a little, did a bunch of work on the house, yadda yadda, but there hasn't been any takers. But they don't think prices have dropped- just too many other houses for sale this summer.

Terry Cullen's article in today's WSJ is a great story about what so many people are seeing in their own real world experiences since the market turned.

Terri and Her Sister Tour Open Houses To Gauge the Local Real-Estate Market

...our neck of the woods has seen some of the steepest home-price increases in the nation over the last several years. In the second quarter of 2006, the median price for a single-family home in our region was $393,600, more than double the median of $188,200 in 2000, according to the National Association of Realtors...

[But] recently she's seen reasons for hope: Far more homes were showing up in their price range, and others she'd seen a year ago were being relisted at reduced asking prices. Melissa decided it was time to look around again, and last weekend she asked me to come along on a tour of open houses in her price range. My sister had a list of homes she'd found online, but I suggested we tour as many open houses as we could to get a feel for the market...

What we saw was bleak news for sellers in our region, but good news for buyers like Melissa and Joe: block after block of open-house signs. In fact, we were hard-pressed to find a street that didn't have at least one home for sale -- and many had more than one. What's more, most of the 20 or so homes we visited were vacant -- a sign that homeowners have moved on and are motivated to sell, or that speculators are looking to unload properties before prices go any lower. (Asked why one home was vacant, one agent said frankly: "This was a 'flip' that flopped.")...

After our exhausting open-house blitz, Melissa asked for my thoughts. Though I'm too young to have experienced the 1980s real-estate market implosion, something told me that things are going to get a lot worse for sellers before they get better. To get an expert's take, I asked Robert J. Shiller, a Yale economics professor, for his insight on where the East Coast real-estate market may be headed...

"We don't know exactly what's going to happen because we've just experienced the biggest housing boom this country has ever seen," he says. In addition to homeowners struggling to sell existing homes, construction is at near-record levels: The last time this much inventory entered the market was 1950, when builders were building suburban homes for soldiers returning from war, he says...

Despite evidence of a cooling real-estate market, Melissa and Joe decided they weren't quite ready to wade back in: They'll take the market's temperature again in the spring.

So we've got lots of sellers that can't fathom a drop in price along with buyers that are learning it pays to be patient. That's a huge spread between the bid/ask.