A home buyer who visited a recent open house told me that home sellers need to “let go of their perception of entitled equity.”
I will pause here for a moment, as you are no doubt trying to make sense of the last statement.
Was this visitor verbalizing that a seller’s home equity be measured and controlled? And the follow up question might be: “Since when is a home owner’s equity perceived as an entitlement?” Was the buyer saying that there should be outside intervention to determine the equity a home owner may net on their sale (so as to make housing affordable), much like rental controls that exist in some areas around the country?
Who makes the decision as to how much equity a home owner may realize (net)? Sure, one could argue that home equity is an intangible concept that comes from the perceived value of your home; where the value is relative until it is realized (liquidated). You could also say that equity is realized through liquidation of the home by either selling it (or cashing out with a mortgage or equity line of credit); the value being the price a buyer is willing to pay, (or the amount a lender decides so as to make a loan). So it seems that when it comes to home sales, market forces still (mostly) determines the sale price and the amount of equity (if any) the home seller nets from the sale. Simply put – buyers and sellers negotiate home prices; generally, buyer pushback on listing prices can pressure sale prices to decrease, much like high demand can pressures prices to increase.
Let’s give the open house buyer the benefit of the doubt; maybe having outside intervention was not what he meant by saying home sellers need to let go of their perceived entitled equity. Maybe he was using (or misusing) economic jargon to make a point by expressing his opinion that housing is currently overpriced.
As I wrote in August, if you want to know where the housing market is headed, ask a home buyer. And it seems as if this buyer is not alone in his sentiment, as the attitude that home prices are too high is (again) an increasing view among many home buyers. It could be that the housing market is encountering what was experienced in 2009, when at that time there was a growing disparity between the price home sellers are asking and what home buyers are willing to pay. After all, it was during 2008-2009 when similar attitudes were strongly expressed, a time when rapidly falling home prices did not encourage home sales.
Quentin Fottrell pointed out in his pithy MarketWatch analysis of recent housing data (10 most overvalued (and undervalued) housing markets, marketwatch.com, 10/1/2014) that “Seven of the top 100 metro areas are overvalued by more than 10%, the highest number since the first quarter of 2009.” He also mentions that the last time this occurred was early in the housing bubble; but Fottrell says there should be little concern of current housing bubble because of the current economic environment (jobs and construction).
Conversations with home buyers are extremely valuable to home sellers for many reasons. What you might come away from this conversation is that there is continued push back on listing prices; and unless home sellers are responsive to pricing feedback, they should prepare for a long time on market.
© Dan Krell
Google+
Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.