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People looking to sell their homes evidently don’t read the
papers. The Case-Shiller home price index for April
fell
nearly 4% from a year ago, and, “Six of the 20 MSAs showed new
index lows in April – Charlotte, Chicago, Detroit, Las Vegas, Miami and
Tampa.” And the pain is likely not over. Robert Shiller
said
last month, “A 10 to 25 percent further decline in real home prices
over the next five years would not surprise me at all.”
Meanwhile, homeowners are in denial. “Current sellers who bought
their homes in 2007 or later, an analysis of the site’s home listings
shows, are overpricing
their properties by an average of 14 percent,” writes
Ann Carrns for The
New York Times.
Instead of pricing their homes to the market, sellers consistently
make the mistake of basing their sales price on what they paid for the home.
“People tend to experience losses even more acutely when they feel
responsible for the decision that led to the loss; this sense of
responsibility leads to regret,” explains Hersh
Shefrin in Beyond
Greed and Fear: Understanding Behavioral Finance and the Psychology of
Investing.
Stan Humphries, chief economist for real estate research firm Zillow,
says this bias “leads to conclusions that are divorced from the outside
market.” The market determines whether a buyer is interested in your
house: “The buyer doesn’t care what you paid or what your
mortgage is,” says Humphries.
Sellers,
are simply faced with a reluctance
— understandable, to be sure — to sell the house for less than
they paid. “They could price more aggressively, but there’s a
psychological hurdle,” [Humphries] says. “They don’t want
to realize a loss.”
Zillow’s economist, like Shiller,
believes home prices will continue to fall.
Douglas French
Mises.org
Douglas French is president
of the Mises Institute and author of Early Speculative Bubbles &
Increases in the Money Supply. See his tribute to Murray Rothbard.
Article originally published
on www.Mises.org. By authorization of the
author
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