The Stock Market and Local Luxury Housing
As we all know, the stock market tanked in 2008 with the Dow dropping 34% and the NASDAQ dropping 40%. So far this year the Dow has performed well with only 6 bad days, but it remains to be seen if the recovery can be sustained in light of the continued dismal financial market.
The graph below shows recent NASDAQ activity compared with its drop in the early years of this decade.
What does this means for the luxury housing market in Silicon Valley? There are really two market tiers: “Move-up/Move-around” buyers and the even higher tier of very discretionary home buyers. For both there has been a real erosion of wealth, but the highest tier will be the greatest stressed this year.
Silicon Valley tech workers and executives are not generally seeing good performance to cash in stock options. Many are holding on to cash to keep their start-up funded rather than thinking about buying that special home they have always wanted. Among luxury home buyers there is currently a general hesitation to take on more debt and a tendancy to step back and wait. Therefore the buyer pool will be minimized in 2009 and sellers must respond accordingly.
Sellers of luxury properties who need to sell in this marketplace cannot just look back at what has sold in the last 3-6 months as much as they need to look at where their competitors are priced today and make sure that when they go to market they are “aggressively priced” so that they are perceived by buyers as the “Christmas tree in the forest”.
Ideally luxury home today should be priced 2-3% below their competition for their one time entry into the market – this is not the time to “test the market”, because if a house does not sell quickly and the sellers are forced to drop their price, that home become part of the “discount market” or “red tag specials” in a downward spiral – sellers will end up selling for less that what they would have got if they had priced it “right” in the first place. That’s the difference between a house “for sale” and a house “on sale.”
As an alternate, if luxury home sellers do not get positive response within 10 days on the market they should immediately drop 5% below their competition, but not expect to drop further unless their competition does so too.
It’s a tough market for luxury home sellers, which means it is a good market to a luxury home buyer. Call Rick Bonetti 408-857-8800 if you need help.
