"Home Sellers, Beware the Urge to Overprice"

Just thought I'd share an extremely interesting article I just read in the Sunday September 4th, Real Estate section of the Los Angeles Times titled "Home Sellers, Beware the Urge to Overprice"!

I've copy/pasted the article below for your convenience:

Home Sellers, Beware the Urge to Overprice

By Kenneth R. Harney, Washington Post Writers Group

WASHINGTON — If you're thinking about selling a house this fall, keep in mind this real-life real estate parable.

It was related to me in late August by one of the country's top analysts of housing price movements and mortgage trends, Amy Crews Cutts, deputy chief economist of Freddie Mac.

Cutts lives in a suburban Washington neighborhood of relatively modest houses of roughly similar ages and lot sizes. Absent major additions or renovations, home values tend to move within a narrow price band, most recently around $400,000.

One former neighbor, however, decided to move the goal posts. He put his house on the market for $50,000 more than anyone had ever paid in the neighborhood — $450,000.

"People will make me an offer," he said confidently.

Three months later, he hadn't gotten a nibble, much less a full-price offer. But he still insisted that somehow, somewhere, there was a buyer out there at $450,000.

About the same time, a couple in the area decided to sell. Their house was comparable to the one listed at $450,000. But they took a different approach. They listed the house at $395,000.

Not only did that look like a bargain compared with the higher-priced house down the street, but the couple also turned out to be in sync with some underlying shifts in market dynamics: Overpriced houses were sitting longer. Fewer serious buyers were in the hunt. Those who were out shopping were well-informed and picky, picky, picky. As a result, prices were not rising as they had in previous months.

How did it all turn out? The $395,000 house pulled in plenty of traffic, attracted multiple offers and finally sold in a bidding war for $425,000. The $450,000 house sat longer and longer and finally found a buyer at $410,000.

The moral here is obvious, and it is especially relevant to the months ahead. Sure, the latest housing price data released by the federal government — for the second quarter of 2005 — showed prices nationwide still appreciating strongly.

But many markets around the country display signs of imminent — or actual — slowdowns, in part because of sheer affordability issues: Incomes are not keeping pace with housing inflation. Even with creative financing, interest-only adjustables and negative amortization loans, prices are still budget-busters in dozens of metro areas.

Cutts believes "we are near the peak" of price appreciation growth for this cycle — maybe even slightly beyond the peak in some areas. More ominous still, Federal Reserve Chairman Alan Greenspan made clear in his late August speech that short-term interest rates will continue to be ratcheted up for the foreseeable future — in part to calm runaway house-price inflation.

By late fall and early winter — or the first quarter of 2006 at the latest — Cutts projects that the move to lower price appreciation will be obvious to everybody, and mortgage interest rates will be rising as well.

House-price appreciation will average "more toward the long-term trend of 5% than double digits" in Cutts' economic model. Of course, all bets are off if crude oil prices rise to anywhere near $90 to $100 a barrel, or if some other external shock causes interest rates to spike. Any major economic disruption that pushes the country toward recession would have a significant downward effect on house prices.

Soaring gas prices already are changing consumers' economic perspectives, and that inevitably seeps into home buyers' mind-sets when shopping for property.

Which brings us back to Cutts' real estate parable. If you are selling in a market that is shifting toward a cool-down, hold back on the greed impulse. In cooling markets, unless you snag the rare totally clueless buyer, record-setting asking prices won't get you many offers.

Real estate agents need to preach this message to potential clients as well. If you truly want to sell your house, price it realistically for your market's emerging dynamics.

Who knows? You just might luck out like Cutts' smarter neighbors and sell for more than you're asking.
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