Art Market Parallel?

"All Things Considered" on National Public Radio had a piece, Economic Concerns Affect Art Market, on this Wednesday's broadcast that I thought had some very interesting parallels to real estate, particularly the second home market. When I was listening to the piece, I kept substituting "real estate" for "art", and it seemed to make tremendous sense. It's worth a listen.

Comments

[mal]

Fascinating parallels, David. Lean times after an irrational run-up in prices, with recent evidence of sales percolating slowly, with buyers enjoying the luxury of time to ponder a decision. I particularly liked the observations of art dealer Josh Baer: "I see people who've been prepared for this, sitting on cash, waiting for opportunities. The biggest challenge is that no one knows what a price should be on anything. It's very hard to transact any business between a buyer and a seller when neither of them knows what's a 'correct' price".

[Julio]

The wide spread between buyer and seller is the definition of volatility.
This is what we see in almost everything today.

[David Knudsen]

Mal, that statement by Josh Baer really hit it on the head for me, too. Not being able to fathom the "right price" is a huge stumbling block to market-making, which is esentially what Realtors do. I was talking with a colleague this week about prices. We were talking about a lake house priced at $600,000. She thought it was well priced, as the seller had come down from about $700,000. I countered with the fact that 5 years ago the house would have been about $400,000, so what makes it 'worth' $600,000 now?

[John]

rqdave
I very much like your comment re: appropriate pricing in a volatile market. Seems to me that every asset bubble ends with a retreat to pre-bubble prices, less some hair-cut for fear and uncertainty. I would expect to see prices retreat to a level at or below where they where when the madness took over. Question is: when did the silliness start? My guess is early this decade, maybe '02 or '03.

If you think about your numbers, $400k 5 years ago for a house where the owner believes it's "worth" $700k, that implies ~50% off recent highs. I know that sounds extreme, but the run-up in prices has been extreme, too.

One more thing: I believe it is healthy and desireable for our nation to become less obsessed with real estate which is, after all, as much a form of consumption as it is an investment. When we reached the point where people began to think that taking on a second mortgage to tart up their kitchen was an investment we lost our bearings. A marble countertop is not a capital outlay. It's not an investment. It's consumption.

Mind you, I've nothing against nice houses - it's just they're really not a substitute for retirement savings unless you're planning to be homeless in retirement.

[~avedon]

...or you can roll your own!

Take a look.

[NY Times Video Clip:]

http://www.nytimes.com/interactive/2008/11/14/realestate/1115-fsbo/index.html

Now there's a thought - walking around with a signboard at the Villa Roma!

~avedon

[henry]

Interesting interview with the heads of large NYC brokerage firms about the new market conditions: http://ny.therealdeal.com/webcasts

It is the Nov 10 video.