As Housing Market Struggles Increase, Home Sellers Slash Prices

Analysts watching the housing market are about to see whether falling real estate prices will bring buyers back into the market. Many home shoppers believe that the value of houses will fall another 10% to 15%, especially in the weakest markets such as Florida and California.

Rising mortgage rates will also make the sale of homes more difficult. And, foreclosures are still running at near record levels.

Home sellers are reacting to all of the downward pressure on housing prices by slashing what they are asking for what is for most people the most valuable asset that they own. It is not surprising the initial listing prices are down, but owners are now cutting those prices even further.

According to Reuters, “Nearly one in four U.S. homes for sale on June 1 had their prices sliced at least once since landing on the market, data compiled by real estate website Trulia.com.” The actions by homeowners could have two results.

The first is that homeowners with houses that are already underwater will face large payoffs to banks at closing, if their houses sell at all. This will put a greater burden on already financially stressed Americans. The stress will be so great the some people will have to abandon selling their homes completely or increase their personal debt.

The second effect of the practice of cutting prices is that it will serve to lower all home prices by forcing more competitive pricing onto the market. The net of this is that home sales will probably pick up, but home prices will continue to fall.

Almost no expert would object to the theory that home prices cannot recover until home sales increase. If more Americans cave in and admit that the price  they want to get for their houses is simply a dream, the market may start to recover.

Douglas A. McIntyre