Blog, Business & Finance
Watch for Buyer / Seller Disconnect
October 1, 2009 by admin · 3 Comments
We are starting to see a a growing phenomenon with New Jersey real estate, at least in our areas on the northern side including Hoboken, Jersey City, Weehawken, Bergen County, and other areas who are heavily employed in the NY metro markets. The fear that there is a buyer and seller disconnect could become a reality if we continue down the same path as we have the last few months. To make a deal happen, it requires a buyer and seller “meeting of the minds”. We went from a frozen market in late 2008, to a fear based market in early 2009, to a reflation trade market over the past 4 months. That’s as best as I can put it.
Reflation: Intentional acceleration of economic activity by a government, usually by using inflationary (public spending) measures, to reverse deflationary trends.
We do not see a consistent uptrend in home values, despite what the stock market says, so it is clear that many buyers are still not jumping on the recovery bandwagon just yet. The monster equity rally may be just enough to alter the mentality of sellers, which consequently could further slow this market down. Unless buyers change also, which I highly doubt, it will leave a disconnect where it will leave us and everyone else with off the wall opinions, since we will have no clue what to expect if that happens again.
Given the amount of monetary stimulus in the system, we should see improving economic numbers outside of the unemployment rate. It will lead many to believe that we are at the bottom of the market. But then again, for many, there won’t be any reflation because it won’t feel like the bottom due to rising unemployment, spending cutbacks, difficulty in finding jobs, real estate and retail distress, etc..
So if we get to a disconnect, or a stalemate, we can expect the following to happen:
1. Buyers will be bombarded by their brokers to “buy now or miss the bottom!!” Buyers could be swayed into making stronger offers on the property due to the mentality that things are improving.
2. Sellers may get “cocky” and not feel as motivated to accept an offer that they feel is unacceptable. Sellers are looking for any excuse in the book to justify why/how their property is worth more than what it was 6 months ago.
#1 and #2 is the current phenomenon we are facing today with the recent equity rallies. It is an injustice to the market and will hold back recovery due to the stalemate brought on by the buyer/seller disconnect. Talk about a world of confusion! A good point a friend of mine Noah Rosenblatt of UrbanDigs mentioned was “While buyers seem fine paying market value for properties today, they do not seem fine with paying a premium over that just because stocks are flying high – yet some sellers are demanding that.”
Stocks and real estate are two entirely different animals. Real estate is more closely tied to the labor markets, incomes, lending/rates, credit, supply/demand, confidence, etc. So as the stock rally may have indirect consequences for the NYC/ NJ metro markets, we will just have to see the way the psychology of it all plays out.
To make a deal happen, you need a meeting of the minds between buyer and seller. If you don’t have that, we will have that disconnect until one side gives in.
What are your thoughts on reflation and disconnect? Share your comments below!
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Great points. We are actually seeing similar mentalities across the river. Even funnier when one of my clients (morgan stanley exec) is his own victim. Got an offer 5% below asking and he declined which baffled me. His reason? Rallies will increase bids. Not a single offer since.