Realius

According to an article published in the New York Times yesterday, disparate answers to this question from obstinate sellers and prospective buyers can spell significant negative effects for the larger economy. In the New York Times article, A Reality Check for Home Sellers, Austan Goolsbee, a professor of economics at the University of Chicago Graduate School of Business and research fellow at the American Bar Foundation, describes research conducted in Boston from 1989 to 1992 when prices fell sharply for condominiums. Due to a large downturn in the market and people’s hatred of losing money, some Bostonian condo owners in the early 1990’s priced condos far too high, pricing relative to their purchase price, not the prevailing market price. As a result, many condos sat on the market unsold.

Fast forward to 2007 and the Federal Reserve and others are concerned that what was documented in Boston in the early 1990’s might occur in many other markets as the housing market softens. Why does this matter? It matters because:

If sellers can’t sell their houses because they want too much for them, they also can’t become buyers of new homes.

“The buyers and the sellers are the same people in this market,” Professor Mayer said. “So if the sellers price so high that they, effectively, put themselves out of the market, it shows up on the buying side, too.”

… purchases of durable goods like furniture, appliances and televisions tend to run hand in hand with home purchases and durables have a disproportionate influence on the business cycle. Further, the freezing of the housing market makes it harder for people to move.

So what should homeowners do today? Here is the advise the Professor Mayer gives his own family members:

“If you want to sell your house then you list it at the market price and you sell it,” he said. “If you don’t really want to sell then don’t put it on the market. But don’t say you want to sell and then set the price so high that you spend the year cleaning up every morning, having people walk through your living room and look in your medicine cabinets and reject you. That’s just painful — and expensive.”

His research offers a simple lesson for everyone out there waiting for a high price to push them back into the black: Get real.

Professor Mayer’s advise assumes that sellers know what the market price of their property is. This is a nebulous area of real estate that Realius hopes to shed some light on. If you want to sell your house, play Fantasy Real Estate(TM) games to get both a good dose of reality and a good sense of what the market thinks your property is worth.