Housing Bubbleheads: The "Delusional" California Seller

Dr. Housing Bubble looks at an underrated aspect of California's depressed housing market: the seller who is reluctant to plumb the depths of the housing market because he wants so badly to believe he can hold on to his inflated valuations.

One aspect that is largely left out of the California housing market dialogue is the reluctant and often delusional home seller.  The conversation has been dominated by distressed home sales because really this is where the action has occurred.  You also need to realize that most foreclosures, not all of course, but the vast majority of distressed sales occur because people simply do not have the economic means to continue supporting their home payment.  The shadow inventory is a very real indication of this troubling reality.  Yet you also have a cohort of home sellers that are enamored by the peak prices of 2005 and 2006 and somehow want to recapture that incredibly inflated sales price.  Many of these sellers are part of the cohort that bought pre-2000 and still actually carry some equity in their property even after the massive California correction.
This has some personal relevance over here at Free Will headquarters as we have begun to seriously look into buying a home (with the idea of making a buy within the next 2 years). Here in the Peninsula/Silicon Valley area, you can find plenty of homes selling for around $300,000 - so long as you don't mind living in East Palo Alto. You can also find plenty of homes priced to the north of $900,000 - and these are regular houses, not mansions. But - and I think this is part of what the Doctor is describing - there is very little in between, which is odd because (1) the Bay Area economy is not exactly booming and (2) there aren't a lot of people running around who can pay around $1M for a freakin' house. But, if you pay attention, you can see that homes stay on the market for weeks and that the price will drop quite a bit, although not so quickly that you can imagine someone with a normal middle class income committing to buy.

The housing bubble didn't just mess with people's finances. It also messed with their heads.

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