 | I thought this was an notable observation by Nicholas Yulico at TheStreet.com: |
"Slashing prices on new homes isn't universally translating into increased demand from homebuyers.
This phenomenon, in economic terms, is called the inelasticity of demand. Typically, demand is elastic with respect to price, meaning that demand increases in some proportion to a drop in prices.
Demand is inelastic when prices for goods fall but the quantity demanded barely changes or doesn't change at all. With homebuilders like Pulte trying to clear record inventories of homes, inelastic demand is particularly bad news.
Pulte, which reported a $788 million loss for the third quarter, is the first homebuilder to highlight this problem amid the ongoing housing downturn.
The company's management told investors on its conference call that in certain communities, 'price is not moving product a lot' and the situation is 'getting a bit inelastic.'
. . .
Pulte said the 'inelastic' pricing problem is broad-based and not just an issue of geography.
'Earlier this year as you lowered pricing, you got something for it. Now it seems like you're not getting so much volume,' Pulte executives said on the call. As a result, Pulte is focusing on offering other incentives to homebuyers rather than just price cuts, the company said.
. . .
Ryland (RYL - Cramer's Take - Stockpickr - Rating) CEO Chad Dreier echoed this sentiment on his company's conference call when asked about the matter.
'I would agree in general principle that prices are reasonably inelastic at this point,' he said. 'If you're selling a home for $300,000 and offer 10% off, I don't think you will sell any more houses.'"
6 comments:
Their biggest problem is that prices are inelastic in the ranges they are moving.
Sorry, 10k isn't much of a price cut on a 300k house.
A 3% price cut wouldn't help sell Bananas all that well either.
This is just a sign that they aren't being aggressive enough with their price cuts.
I suspect Leroy is right. If they cut all their prices %50, I bet they'd find buyers.
Nobody is buying homes right now.
Face it, the market was driven by speculators and people with no credit.
Now that the speculators are out, and have dumped their inventory, the poor credit owners are foreclosing - there really arent many people that want a home that can qualify.
Im sure there are some buyers, but they have hundreds of homes to chose from and plenty of time. They can afford to lowball any house they like by 20-30% under tax value and just wait till somebody is desperate enough to accept.
I'm with Doug.
The 6 houses (minus 1) that we've 25% underbid in the past six months is still on market. Herndon/Reston. The sellers(agent or owner) are still sweating and feeding me pipe dreams about their myopic view of good times they wish would come back.
There are no buyers. And the ones that can by (like my family) are under no pressure to pay their inflated ego prices.
I have to agree - the prices haven't come down enough.
We have money to spend, and time to wait. No contingincies either.
We're just sitting back and getting ready to low-ball REO's we like and plan to just keep putting in the offers. Figure a bank will eventually get desperate enough to sell at some point (but most of the REO's we've been looking at have been on the market for 6+ months already).
I think this phenonemon also fueled the housing "bubble," i.e, the "I gotta get a house no matter what the price" mentality. Now we are seeing the flip side of that same coin. I know some people that need to change their housing situation (change in job or change in family) and they are too afraid to even buy what they can afford because of the fear of being "upside-down" and stuck with a house.
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