By Chad Huebener
The other day, a woman I was talking to was wondering why homes are selling for so little in her neighborhood these days. She stated that since there were no foreclosures in her neighborhood, she did not think her neighborhood was affected by the falling home prices that tend to follow in their wake. She was getting sticker-shock when she saw the sale prices in her neighborhood, and she was surprised to learn that foreclosures DO affect her neighborhood.
While I have long ago grown accustomed to the look on people's faces when they realize how far our housing prices have fallen, her question was particularly interesting because it highlighted a consumer thought process that up until that point never dawned on me existed.
Her thought process made sense. After all, I can understand how homeowners mentally segregate their neighborhoods from other neighborhoods in terms of value. I do it myself. Houses built by the same builder in the same neighbhorhood tend to carry very comparable values.
Similarly, rarely does a home built by the same builder in the same neighborhood during the same time period with the same or similar floor plans on comparable sized lots see significantly different sale prices. There might be some value discrepancies based on location within the neighborhood, condition, or other factors, but overall, it just doesn't work that way. So it only makes sense that the home values in a neighborhood with this degree of uniformity are affected by foreclosures and short sales within that neighborhood.
So what about a neighborhood where NO foreclosures exist? It's prices would not be impacted by foreclosures and short sales, right?
The answer to this is simple .... All a buyer needs to do is shop around. Let's say that the non-foreclosure neighborhood holds its prices steady, while other neighborhoods experience foreclosures and see pricing declines. If the buyer can purchase a relatively similar home in another, nearby neighborhood where foreclosures have brought down home prices, then the buyer will tend to purchase the significantly lower priced home nearby. And when a few buyers begin doing this, and sellers in the neighborhood without any foreclosures start realizing that homes are not selling at the listed price because buyers are choosing to purchase elsewhere, then sellers (in the neighborhood without any foreclosures) will begin to drop their prices to compete with the neighborhoods that do have foreclosures.
Those sellers who do not price their home in alignment with market conditions often discover all too late that their house will not sell for list price. By the time they lower the price, the market times that have accrued are telling buyers there might be something "wrong" with the property, even if there is not. And a lower offer price will reflect that buyer belief.
Foreclosures and short sales are an unfortunate reality in our market. And it drives home one of my earlier contentions that the seller who puts his house on the market simply because "he wants to" is now, for the most part, a thing of the past. The financial flexibility simply does not exist for many.
The good news is that sales are up, inventory is down, and houses are moving more quickly than they were even this past spring. Lower inventories equate to less competition for sellers. And lower market times equate to higher offer prices. Day by day, bit by bit, we work toward market recovery. In the meantime, overpricing homes (i.e. not pricing them in line with the true market conditions) is unrealistic and hurts neighbhorhood values because when that late offer finally materializes after numerous price reductions, it is almost a guarantee that that offer will be a low one. And all the other homes in the market will be affected in some way.
Comments (2)Subscribe to CommentsComment