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Forget The Location Mantra; Price Now Drives Housing Market

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By JOHN F. WASIK, Bloomberg News

Published: November 20, 2007

Raffles, festive balloons, open houses, car giveaways. Will any of these incentives sell houses? Not at the moment.

You don't have to be particularly creative in a market glutted with homes for sale. The painful reality is that homes are commodities. There are more than 4 million of them sitting out there unsold and more coming on the market every day because of foreclosures. If you really need to sell a house, price is the one lever that will move a property.

Almost everywhere your competition is abundant while buyers are waiting for prices to fall even more. U.S. existing home prices are expected to drop almost 2 percent this year nationally, according to the National Association of Realtors. And they are likely to fall further in areas oversaturated with homes for sale.

"Buyers just want price," said Mike Morgan, a Stuart-based lawyer, real-estate broker and consultant who researches property markets for hedge funds and financial institutions. "Buyers have become educated, and they can easily cut through the fluffy incentives."

Morgan doesn't see a rebound until at least 2010; maybe longer if builders keep constructing homes, and if banks continue dumping foreclosed properties on the market.

Fluctuations In The Home Market

There's no way of telling how many homes are on the market because the picture is so dynamic. About 2 million properties may be foreclosed upon in the coming year alone, resulting in an estimated loss of $223 billion in U.S. home equity, particularly in Florida, California, New York and Illinois, according to the Center for Responsible Lending, a North Carolina-based nonprofit group.

Living near a foreclosed home may trim as much as $5,000 from your home's market value, the center says. Some 44 million households will be affected, or about a third of all U.S. housing units.

Selling has become a trying proposition in this dour market. Morgan has found that traditional deal-sweeteners, such as paying broker bonuses and giving cash back on closing to the buyer, aren't working as well as price cuts.

"On one $429,000 home a client wanted me to sell, the seller wanted to give the broker a $30,000 bonus on top of the commission. I told him it wouldn't help. I told him to just drop the price."

Sellers Need To Be Flexible

Because the market is so price-sensitive - buyers want bargains, and sellers want to get prices they saw at the market's peak - you have to be flexible.

Morgan suggests you sell exclusively through Internet-based property sites and local Multiple Listing Services. He has found that newspaper ads, signs and open houses don't work as well as the Internet.

When you price your property, you need to employ a strategy that can run counter to your emotional perception of the home's value. That sometimes means listing at a price far below your ideal.

Like any commodity, a home's price will follow supply-and-demand trends. In theory, custom homes in desirable neighborhoods should hold their value. Other properties should be discounted depending on how many similar homes or condos are on the market.

Drop Price To Sell Home

"If you don't get any calls on your listing price after a week, drop your price $10,000 or about 2 percent of your original asking price," Morgan said.

"The market will tell you what the price of your home is. You better be priced 10 percent under your competition, and then be prepared to think about accepting offers under that."

I know that's a disheartening strategy. Yet if you have to sell now, you need to take an honest look at housing inventories in your area.

Selling in Miami? You are up against almost 80,000 listed condos and single-family homes, according to ZipRealty, an online brokerage service.

There are almost 30,000 units in Las Vegas; 42,000 in Boston; 35,000 in Seattle and 110,000 in Los Angeles. Those inventories are through October.

Price-cutting is the order of business in most major markets. The service's price-reduction index, for example, shows that more than half the listings surveyed in Boston, Orange County and Sacramento, Calif., are discounted.

Even markets that were considered relatively stable are bloated with unsold homes.

"People were telling me Boston and Seattle were OK," said Morgan, who recently visited both cities. "I've got news for those folks. They aren't OK."

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