Why do home prices fall slowly, in a down market?

Karl “Chip” Case gives his opinion, in a paper released recently.

Bob Shiller and I have surveyed homebuyers for nearly two decades, and consistent evidence of this stickiness is found in the responses to survey questions. Buyers who sold properties prior to buying in the four metropolitan areas surveyed (Orange County and San Francisco in California, Boston and Milwaukee) were asked, “If you had been unable to sell your home for the price that you received, what would you have done?”

The answers of the 254 respondents in the first survey have not materially changed over the years.

Of the total, 95 (37%) said that they would have “left the price the same and waited for a buyer, knowing full well that it might take a long time.”

Another 70 (28%) answered that they would have taken the house off the market or rented it.

In addition, 77 (30%) answered that they would have “lowered the price step by step hoping to find a buyer.”

Only 12 respondents (5%) answered that they would have “lowered the price until a buyer was found.”

Why did they fall more quickly, this time? Mostly, Mr Case says, it’s because of the large number of homes being foreclosed upon.

Downward Stickiness in Prices (warning, PDF), By Karl E. Case

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