How to Kill a Market

The most recent figures on home sales indicate that the median price of a home in the U.S. fell by 1.2% from year-ago numbers.  More important, however, was the fact that declines only occurred in one-third of the 148 market areas.  The good news is that in the other two-thirds, prices were stable or increasing.  I think that the news media can be particularly eager to tout something sensational, like the nationwide decline, and ignore the fact that a majority of the markets have not been affect negatively.

In California, values actually rose. In the greater Los Angeles area, the rise was 5.2% although in Orange County prices were off by .8 % from 2005. Other areas in California, the Bay Area and inland Southern California were up year to year although Sacramento and San Diego markets, where there is a lot of homebuilding activity, were both down. Some markets show surprising strength, like the Seattle area where prices were up 14.6%.

A friend is selling his home. He finally came up with a realistic price that he thought would attract a buyer and result in a quick sale. By that I mean he was not trying to "defend" a high price, just trying to be reasonable.

What worried me was his report of his real estate agent engaging in scare tactics to encourage him to list now. She firmly predicted that prices were going to drop 10% and said if he sold now, he could save himself from losing all that money.

I am not one to predict the future and I am skeptical of anyone who tries it. The agent does not know what is going to happen any more than you or I do. Nor, when you look at the statistics, I see any evidence to support this "guess."

I shudder to think of what would happen if all the real estate agents started telling this to all their sellers and buyers.  This world is, to a great extent, one of expectations. The Consumer Confidence Index tries to measure that.  (By the way, that index has been up the last two months!) When you start trying to manipulate people to a particular expectation, like a market collapse, you just might get it.

If you are likely to participate in the real estate market either as a seller or buyer, study the facts and make up your mind. Don't pay attention to people who think they can predict the future.