Wednesday, October 25, 2006

Stubborn sellers could harm housing sector

Stubborn sellers could harm housing sector
By Patrick Rucker

WASHINGTON (Reuters) - At a recent meeting with her Las Vegas real estate firm's 200 agents, Joanne Levy told them they needed to deliver a stark message to clients.

They would tell them that unsold homes are at a record level and sellers need to lower their prices.

In other words: the boom is over.

"They want the 2004, 2005 market," Levy said of today's clients. "We don't have that."

With stubborn sellers refusing to relent on asking prices, many prospective buyers have kept their hands in their pockets.

Some industry observers fear that bull-headed home sellers could worsen a downturn by driving up the inventory of homes for sale and running off would-be buyers.

The phenomenon is likely to touch "the bubble markets where you have a bigger investor share and big appreciation," said Ethan Harris, chief U.S. economist for Lehman Brothers.

"For the serious buyer and seller, there is a convergence over time," he said. But once-hot housing markets in states like Nevada, California and Florida have more homeowners who just do not want to yield on their asking prices.

Some are investors who bought at the height of the market with a small down payment and big hopes for gains. Others are homeowners who saw their neighbors cash out with a handsome return and will not accept anything below their asking price.

"Sellers have not caught up with the reality of the marketplace despite the proliferation of 'For Sale' signs," said Howard Glaser, a mortgage industry analyst with the Glaser Group in Washington, D.C.

"There is a lag period between sellers' expectations and the reality of the marketplace," he said, and shaking them out of their high-price fantasy "is more psychology than science."

But cold facts are staring some homeowners in the face.

Las Vegas had 20,800 single-family homes on the market in September -- a 57 percent jump from a year earlier. A year ago, more than half of the homes sold in under 30 days and now less than a third sell in that time.

It's the same story in once-booming regions like California, where home prices in eight major markets declined in September compared with a year earlier.

Despite these truths, real estate agents say, many sellers continue to overreach on their asking prices.

"I try not to list those properties," California Association of Realtors President Vince Malta said of the overpriced homes.

"You could do that last year and someone would still come in and make an offer," he said. "Back then, we were all marketing geniuses."

But those once-hot markets have changed -- even if the mentalities of some would-be sellers have not.

A homeowner's blind faith in the price of his or her home could be costly if it flies in the face of reality and prices continue to drop, said Stephanie Madon, a psychology professor at Iowa State University.

"If the homeowner believes the house is worth a lot and refuses to budge, it could become a self-defeating prophesy," she said.

In the end, stubborn sellers could lose more home value the longer they delay.

But Madon says they will accept reality eventually and yield to market pressures.

In the meantime, many agents say they are in a difficult state of flux.

The soft market is frustrating, Malta said, because prospective buyers have good reasons to make a deal now, with interest rates at relative lows and many sellers offering incentives to move their homes.

"They have a lot of properties to choose from now," Malta said of buyers. "But they're afraid prices will go down further and are just saying 'Let's wait and see.'"