Sellers need to get realistic about what their homes are worth

Housing prices are still in retreat, according to the latest government figures, and two recent surveys indicate that prices have to tumble further before the market reaches equilibrium.

Only 27% of the houses listed for sale throughout the country have cut their asking prices since first coming on the market, reports real estate search engine Trulia. According to HomeGain, a website that links buyers and sellers with realty professionals, more sellers need to get realistic about what they want if they expect to be successful in the current downturn.

A HomeGain study of some 700 agents found that nearly half of owners are still very much in denial about what their homes are worth. Owners are aware that prices are falling around the country, but they tend to believe it’s their neighbors’ houses that are dropping in value, not theirs.

“Homeowners know that prices have fallen but that somehow doesn’t apply to them because they have ‘upgraded vinyl’ or some such nonsense,” says Pamela Frey-Primiani of Keller Williams Realty in Sicklerville, N.J.

Frey-Primiani isn’t the only agent who thinks sellers need to get real. Half the agents surveyed think that prices will have to come down more, if only because 3 out of 5 would-be buyers who visit their listings believe that the houses are overpriced.

HomeGain’s survey is telling homeowners that “their homes are worth considerably less” than they think, general manager Louis Cammarosano said.

One reason prices are likely to continue falling, at least in some places, is that the inventory of unsold houses is still way too big.

James Gaines, a research economist with the Real Estate Center at Texas A&M University, says a six-month supply of homes for sale is just about normal. “Actual equilibrium” in any market can differ slightly, usually between five and seven months, he says. But the latest numbers show there are still far more houses for sale than there are buyers.

Because builders have all but stopped putting up houses on a speculative basis, the number of finished but unsold new houses shrank to 311,000 in March, according to the Commerce Department. But at the current rate of sales, that’s equal to a 10.7-month supply.

The number of unsold existing houses has fallen too. But with 3.7 million houses still listed for sale, that’s a 9.8-month supply.

Of course, all this is relative to where you live. And not just your state or city, but your neighborhood or perhaps even your street. That’s because all real estate is local. Even in places where prices are still falling, there may be a sub-market where things aren’t so bad.

Take Prince George’s County in Maryland. According to an analysis of single-family houses sold over the last 12 months in the county just east of Washington by agent Ginger Hand of Long & Foster Real Estate, the average selling price fell in all 29 of the county’s ZIP codes. The average decline was 16.6%, and the greatest was 28.3%. But in one ZIP Code, the average was off only 7.8%.

Unfortunately, there isn’t any survey that drills down that deeply on a local basis, so you’ll have to do your own legwork. And when you do, you’ll want to know not only whether prices are down in your neck of the woods but also the trend over, say, a 12-month period, so you can get in front of it.

If prices are falling at a slower and slower pace, for example, sellers may not need to cut their prices as much as they would have had to slash them a year ago. But if prices are declining at a more rapid rate in the jurisdiction you are studying, well, you don’t need a scalpel -- you need a butcher knife.

One place to start your research is the Federal Housing Finance Agency’s quarterly survey of the nation’s 32 largest metro areas. It’s the same study the FHFA uses to determine the maximum loan that the two giant secondary-mortgage-market institutions, Fannie Mae and Freddie Mac, can buy from lenders, and indirectly, the maximum mortgage amount that can be insured by the Federal Housing Administration.

In its most recent review, the FHFA found that, on average, the selling price of both new and existing houses was down just 2.7% for the first three months of the year. But the prices really varied.

In 13 of the biggest cities in the country, the average was up over the same period a year earlier. In 10 of those markets, the increase was in double digits. At the same time, though, prices were down in the other 19 metro areas covered in the survey, including nine that reported double-digit losses.

It’s doubtful that prices are changing that drastically, up or down, over such a short period. More than likely, there have been a larger number of sales at one end of the price spectrum or the other. But it also shows that in down markets, the bargain hunters are having a field day, and in the up markets, folks have faith that housing in their areas is good and strong.

Distributed by United Feature Syndicate Inc.