Greenwich Luxury-Home Discounts Winning Over Hesitant Buyers
An article in Bloomberg titled “Greenwich Luxury-Home Discounts Winning Over Hesitant Buyers” discusses the sale of 22 houses this year in Greenwich, Connecticut, a wealthy suburb of New York City. The article introduces the idea of a housing “pile-up”, explaining that in the recent past, many of the houses being put on the market by sellers in Greenwich have not been bought as quickly as they usually are. Hence, the 22 houses sold this year in Greenwich are some of the properties with the longest duration on the market with an average time of 261 days. This average is more than double the average time on the market for a house sold last year, which was around 130 days.
In order to sell these properties and diminish the housing pile-up carried over from 2018, experts claim that sellers are slowly realizing that the demand for the prices they were offering was too low. On average, across all sold single family homes in all price ranges, the houses sold this year had a 10% price drop between their original selling price and the final buying price. Most shockingly, in the top 10% of home prices, the average price cut was almost 22%. These numbers show that sellers are making changes to their pricing in order to clear the market and invite more demand from buyers. However, even with these discounts, the sale of single family homes in Greenwich is down 12% from last year, most likely due to the slowing housing market in New York City. Many buyers that would like to purchase a house in Greenwich currently live in New York City and cannot buy a house until their current residence is sold.
This scenario describes a matching market assigning buyers to sellers in housing transactions. Sellers originally hoped to maximize their payoffs by holding out on selling until they could find buyers willing to pay their asking price. This waiting caused a large build up in the housing market with a diminished amount of social welfare, as potential buyers could not find homes, and sellers were losing money over time from not selling. The sellers had hoped demand would increase without a decrease in prices, but the buyers in this market are quite adamant about their valuations for each house. Once the sellers realized the demand at these prices was more static than they originally believed, they lowered their asking prices significantly, and many homes were sold as the prices became more market clearing. Social welfare increased with the completion of these transactions, and it is expected that many more buyers from New York City would be interested in purchasing from sellers in Greenwich once these buyers are able to sell their current homes in the city.