Home Sale Relief

I enjoy reading the fantastic therealestatebloggers blog, and they have a great post today on what it is that makes your house sell quickly.

He focuses on pricing a home correctly, and I think he is dead on. I was out doing an information look at housing recently in a seaside southern city and was amazed at the huge distribution in housing prices. The city had seen a huge run up in housing costs, from an average of 185,000 in 2001 to over 400,000 in 2006. Now there is not a street that does not have a home for sale.

But driving around the housing prices were still priced with the full appreciation even though any logical person would scream that there are way to many homes on the market. It seems that the paper profit has been locked in by all parties and no one wants to be the first to cut their prices.

So the inventory is just sitting, lots of empty homes, builders asking for the moon, and real estate agents living on beans and rice. Yet we did come across a couple of homes that accepted reality and had cut their prices. My guess is that the next time I am looking in this city these homes will have been long been sold while the others whither on the vine.

House prices are what economists call “sticky”. Sellers look at the comparable sales that favor their (the sellers’) sense of what their house should be worth. House prices are a legend in the seller’s mind, is another way of putting it. And sellers only slowly adjust.

Here’s a simple analogy. It’s easy to get used to making an extra $5000 per month. But if you suddenly lose that $5000 extra per month, and you are stuck with your former income, it can be quite painful for a prolonged period of time.

Sellers are used to those high valuations and they resist lowering their home’s valuation  until the bitter end. As more and more sellers are in this denial of what their home is truly worth, more houses are sitting on the market at the old, inflated valuations. And that is where we are today.

Today, home prices are worth far less than they were even six months ago. But sellers don’t want to face up to that. So they keep their homes on the market, at a price that is completely unrealistic given today’s valuations. Like the idea of $5000 per month extra, they had an easy time adjusting to a higher valuation, but they have a very tough time accepting a lower valuation.

Don’t you do this. If you need to sell, you must price competitively. That means pricing less than “market” if you want your house to sell. That might mean selling for less than you owe on the mortgage. Get a short sale together if you need to. But sell now and don’t wait. It is likely to get worse as more pent up selling demand results in more houses coming on the market. It is predictable because there are a lot of sellers who are still overly optimistic and when they wake up and smell reality, there will be a ton more homes for sale on the market, at lower prices.