Greater Fools, SUV's & Real Estate

What do the “greater fool theory” and SUV’s have to do with real estate in Fredericksburg, TX?  These day (unfortunately), plenty!

The greater fool theory holds that paying too much for something is o.k. as there will always be a greater fool willing to pay more. The theory manifests itself in our current market when a seller refuses to lower their price to “market” in the hope that a “greater fool” out there won’t mind overpaying for their particular home.   Of course, that seller (if successful) becomes a buyer and their logic is immediately reversed when (to them) everything they see as a new purchase is “overpriced”.

Many of the properties currently on the market in Fredericksburg were purchased in the last 5-6 years when the market could be relied on to appreciate.  In many ways, these folks bought at the peak.  The facts and figures of current market conditions irrefutably tell us we have reached a plateau in sales, pricing, volume, inventory, etc. and some indicators are beginning to decline.  As inventory builds (currently as much as a 24 month supply in some sectors of the market, equilibrium is generally agreed to be around 6 month of supply) time on market increases, list price to sales price ratios decrease and downward pressure on pricing builds.

As Fredericksburg tends to be a “discretionary market” (e.g. buyers don’t HAVE to buyer here and (most) sellers don’t HAVE to sell), we have an impasse.  If history is any indication (as we all know it is), a new rule will kick in to break the stalemate…the golden rule.  No, not that one, the more callous one that says “he who has the gold makes the rules”.  In other words,  buyers (who should already have the upper hand, but don’t) who have cash in hand and/or pre-approved financing will soon see more and more sellers willing to “blink” and accept prices more in line with market realities.

SUV’s?  Soaring gas prices has a lot of folks trying to sell SUV’s to replace them with more fuel-efficient alternatives.  The market for SUV’s has been flooded with inventory that very few folks are willing to buy.  The “value” of SUV’s has plummeted and sales of new units are the worst they’ve been in a decade.  The simple, beautiful and pure principals of supply and demand cannot be more clearly evidenced.

My advice (and it’s worth what you’re paying for it) to buyers is to be aggressive or wait it out.  Things are definitely going your way.  You do, however, have to actually ask (make a written offer) for what you want.  All a seller can say is “no”.  To seller’s I advise you to listen to your agents, read the reams of data they provide you and adjust your expectations accordingly. If you elect not to listen, don’t blame the agent for not selling your property, the problem lies much closer at hand.

Remember, Experience Matters