Real Estate Crash

good day to sell lindens though...
seems that $L are in a bit of demand.. what with new land being available.

Their is no such thing as a bubble bursting in SL as far as RE is concerned.

I agree with that though (See Above)

Please define "bubble bursting." I'd say land losing half its value overnight is a exactly what "bubble bursting" means.


"In cash for the crash."

I've been watching the various "OMG! Land Prices are COLLAPSING!” posts and articles for the past week with a sense of bemused amazement. This bubble and its collapse was entirely predictable—and predicted. Linden Lab can put out a certain number of new servers each week (I think the limiting factor her is likely personnel rather than parts or money). In November, LL’s announcement that tier prices were going on islands purchased after a certain date sparked a huge upswing in island orders. LL shifted the majority of its capacity to filling those orders, and the mainland stopped growing. But SL’s population did not. To no one’s great surprise, land prices on the mainland shot up past “silly” levels into “stupid” levels.

But the shortage of new Mainland could not last. The rush on new islands had to end. And when it did, LL’s new server capacity would be moved to Mainland expansion. LL’s has long had a goal maintaining average Mainland prices at about 6-7 L$/m2. This is nothing new.

Here’s a prediction. The bubble has only started popping. As people who bought land at the peak of the bubble start having a second month’s worth of tier come due (and realize that they are not going to make a mint on their land holdings), they are going to drop their price further, as will their competition. Panic selling will ensue. I expect to see Mainland land prices decline even further over the next few weeks, possibly bottoming out with good land available as cheap as 3L$/m2.

If you want to tier up and try the baby baron business, forget about the auctions. Snap up cheap land in mid to late February.

Oh—here’s another prediction for anyone interested. The price of private islands on the resale market will collapse in mid-to-late Fall of 2007. The economics of this prediction are left as an exercise to the student.

I'd term this an "inevitable correction". Sorry for those with lack of foresight or poor timing, but investment implies risk.

LOL * covers ears as the loud 'pop' occurs *. If this was RL real-estate, it would be the worst disaster in 40 years, it would trigger a recession.

Classic bubble, classic ending. And if Linden Labs didn't trigger it now, other forces would have at a later point -- in fact by doing this now Linden Labs has reduced an even more costly and dangerous situation should the bubble have continued to grow.

I'd call it a panic sell-off rather than a bubble bursting. There's still plenty of new residents that want and can afford land, and the world continues to spin, however laggy it may be. People think that prices are going to go through the floor with the release of new land so they're dumping it. I think what happens next depends on how the auctions shake out this weekend and if Linden adds another slew of auctions right after the current batch. I'd rather hang on to what I have for a few weeks than take a huge loss.

I don't agree with the theory Private Island Estates will suddenly fall. Linden Labs have just offered to upgrade them all (while stocks of servers last) to class 5 for a one off fee of $200, and no tier increase plus retention of grandfathering. That is a pretty fair offer.

However this will put further pressure on mainland in my own opinion as class 5 servers do add performance, please visit the Caledon Mayfair and void Sims nearby for a practical demonstration.

Reputable Island Estate owners (Anshe Chung, Desmond Chang, Azure Group, the Elf Sims and Otherworld) to name but a few could well profit from this move.

Just a personal view

Regards

John

Actually, it's a little more than a sell-off - the flip side of it is that potential buyers are now waiting for prices to fall further before making what, in some cases, can be an expensive purchase. The only people buying are people who think it's fallen enough, other resellers who think there are bargains to be had, and people who don't know what's happening.

Cross-posted from SC...

My gut feeling is that at the end of the day, this is what has to happen for long-range growth. This land pricing is unsustainable and the first land scamming has to be stopped. Long term profitability comes from lots of premium members paying tier on smaller parcels and not a few premium members sitting on lots of land; tier scales cheaper the more land you own. Premium members paying on 1024's through a half sim worth of land is where the profit for LL is. People creating one-month premium alts to scam first land is a money losing proposition for LL.

Getting new members into land ownership isn't going to happen if they can't get any first land and if the price tag for getting into the profitable 1024 ownership and up range is prohibitive. There have been a lot of ideas floated about how to eliminate the first land scammers, but all of them involve onerous rules on first land parcels that inhibit their use. The sensible solution is to keep the resale value of first land parcels sitting at about $3500L, which leaves no profit for a scammer. The quickest way to achieve that is to crash the market to bring down the resale value of first land and then the land supply has to be managed long term for stability -- much the same way that LindenX is now kept within a narrow margin.

LOL, I *really* should bite my tongue, but am I the only one who sees this comment as amusing (in the classic, ironic sense)? A "panic sell-off" is NOT a bubble bursting?

Ok, I promise, no more about this, but here is a great article:

http://en.wikipedia.org/wiki/Economic_bubble

This wikipedia article could be retitled: "Land Prices in SL in the Past Three Months."

For a bubble to burst their has to be a bubble to begin with.

My defention of bubble would include a history (Not 3 feeble years) of relevant prices, that history would have to demonstrate a market that is NOT influenced by factors outside the economic communities control (LL deploying new servers ie; land.) Because that is something that we cannot control it would be incorrect/improper (IMO) to say that a bubble is "bursting" or that it exsist in the first place. What bubble are you reffering too?



I agree, and with your permision....

Rephrased: Think about the risk's long enough to determine if they are worth the effort, when selling content for example you have to invest time, I have been selling for quite some time so if anything is to go wrong in this unstable, out of my control Virtual world I still walk away a happy camper with oodles of cash to spend Land Barons walk away with less + a bad taste in their mouths.

From the wikipedia article, far more articulate than I:

"...a market condition in which the prices of commodities or asset classes increase to absurd or unsustainable levels..."

Clear as day.

I don't want to go on about this too much because it will come off as sour grapes. To be clear I lost nothing in the crash, in fact I will profit if prices stay down here.

The price of land yesterday was not at all unsustainable. It was caused by supply and demand. If supply had remained steady so would prices. LL just increased the amount of available cheap land by about 10 fold. This has had the normal expected affect on land prices. It is not a crash in the sense that people panicked and started selling off for no reason or because of a margin call or something. There was a very clear reason for prices to decrease since all of a sudden there was an oversupply.

Well, some folks around here don't seem to like the bubble bursting anology - as an English major, I feel obligated to offer up some different terminology for y'all to chew on!

Really, though - to me, bubble bursting has connotations in RL of mortgage rates, economical factors, people going bankrupt, etc., and what we're dealing with here is essentially piles of 0's and 1's encased in metal.

Well said, invest in what you can afford to lose because at the end of the day, what Ann said is just that: .....essentially piles of 0's and 1's encased in metal.

Great analogy not very accurate description though.

It was not hard to see this coming a mile away - especially after the blog described 4 regions per day as a "fairly slow rate." I have a sweet taste in my mouth, but it could be from the candy I just ate... Who needs to buy some L$?

No, a panic sell-off is not the same as a bubble bursting. For instance, there was a panic sell-off of Linden dollars when the Copybot scandal happened, but within less than a week the exchange rate was back where it was previously. In that case there was no bubble in the Linden dollar valuation.


In land prices, there was indeed a bubble, but it was already slowly deflating of its own accord. However, Linden Lab then released more than FORTY sims in one day. There is a bit of theater to this, a one-shot-deal market manipulation. And this is what turned it into a panic sell-off.

Linden Lab could have simply quietly upped the auction rate from 4 a day to whatever the new sustained daily rate will be. They certainly won't be releasing 40 sims a day, every day from now on. Don't forget that LL's servers are very energy-hungry -- LL can't use rack servers, for instance -- and any given data center can only host a limited number of them. The new sustained auction rate may be higher than 4 a day, but will be far less than 40.

As far as I can see, nearly all the selling at the moment is barons dumping recently-acquired land. Once that dumping is complete, we'll have to see the new sustained daily auction rate to gauge what level prices will settle at.

My hunch is that the panic sell-off has been overdone, and there will be a correction to the correction. Regular folks are not selling at these prices. And don't forget, land prices don't matter anyway.

Everyone else is predicting so I will too 40 sims a day for another 4 days. Then new continent opened with slightly increased daily pace at 10-15 SIMs per day. Price will settle at 10L per acre in 3 months. That's my 2 Lindens. Probably way off, but that's me "feeling". Cheers!

Everyone seems to have a different opinion on how low things will go and how fast it will occur. Not surprising really, if you asked 10 different barons before the crash (I did) what they though prices would be in a week, you would have gotten 10 different answers ranging from 6L/sqm to 12L/sqm. Because of this 'panic', it's really hard to guage at the moment what 'real people' are actually willing to pay for the land -- by real people, I mean people that actually plan to use the land for some purpose other than putting it back for sale within hours.

In certain ways, it's quite similar to the Great Depression in that some banks went bankrupt not because it was inevitable, but rather because their clients thought it was inevitable and withdrew their funds at such a rate that the bank collapsed. We could see the same thing in SL -- it's not really any different than RL in some ways, really. I don't live in NY so I can't back this one up with solid facts but I would imagine houses near ground zero would be worth substantially less today then before 9/11?

Because as some people on this thread have carefully pointed out, sims merely are data on a server. The physical value of a sim in relation to the amount of server space is far lower than prices are, even currently. That being said, if LL can garner an average bid of say 1200usd on those 40 sims, that brings in 48000usd. When they were releasing 4 sims a day, initially we were seeing bids of 3500-4000usd. No matter how we compute the numbers, LL will be making at least 3 times as much money this way -- tier fees entirely cover their server fees in the long run, perhaps sooner than later depending on how the land is cut up and how fast such is done.

I for one, wouldn't put it past anyone that sims fall *temporarily* below a value of 1000usd per sim. This is not to say LL will reduce the minimum bid, I strongly doubt that, but rather that people who payed marginally more than 1000usd or perhaps even merely 1000usd for their sim are faced with paying that 195usd tier for another month and hence rationalize that anything over 805usd would be more profitable than waiting another month to sell it for the equivalent of 1000usd. That puts my estimated minimum price around 3.5L/sqm, or roughly 1.8k on a 512. Will prices get that bad (or good depending on how you look at it)? That fact resides with us, not LL. In essence, once the value of a sim goes beyond the minimum bid, LL has no control whatsoever on prices using their current mechanisms of 'strategically adjusting' prices. Sure, they could increase tier costs, decrease prim counts, or something of that nature to decrease land costs, but all that seems highly unlikely for the time being. If anything really kills us for the time being, it's a panic situation in which everyone is undercutting everyone, experienced players and newbies alike see this happening, deciding to wait until this ceases before making considerable investments in land... This in turn leads to more panic and a conception that the market is falling apart, not because it actually is, but rather because people are waiting to see if it will.

Sound like a conspiracy theory?

Reeece. Just wanna give u credit for posting. I like your way of being honest about your trade. Great to get perspective on "both sides". Keep up the good work!

Thanks Woopsy I have no problem admitting I made a mistake -- the important thing is that I learn from it and don't make the same one by for example buying a whole pile of real estate at the moment knowing there are certain factors we just can't account for until these sims are finally bought and we see how the market chooses to react to them.

At L$3200 for a random 512 (the current low price), ripping off first land with bots has now become a marginal business model again.

As in RL, there is one thing constant about SL........change.

Sometimes you can profit if you act quickly. However, more times than not it's better to be patient and wait. To me the key is to wait....just don't wait TOO long.