Potential buyers wait to be "priced-in"

Great piece this morning from the Wall Street Journal:

How Low Will Home Prices Go?

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.")

Though some of the agents we encountered continued to promote their "charming" homes as "a steal," a surprising number were more candid. "The owner way overpriced this home," said one. "I bet if you offered $30,000 less they'd jump at it." We believed her, because she was running the open house as a favor for another agent.

Another sign of a turning market: We saw very similar houses with prices all over the map -- ranging from the low $200,000s to $270,000. That's evidence that sellers aren't sure what houses are worth these days, with some reluctant to accept that market dynamics have changed.

"They look at home-price comparisons from a year ago when there was far more demand than supply," says Pat Lashinsky, senior vice president of Emeryville, Calif., real-estate firm ZipRealty. Now that there's excess supply, he says, sellers need to be more willing to negotiate.
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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.