There’s a simpler explanation why housing prices might be falling in some markets, but it only makes sense if you understand what “list price” means.
I don’t know about you, but I”m pretty sick of “context-less” reporting. You know the kind: someone throws some numbers, charts and spreadsheets into a “report” then releases a summary without analysis or conclusions. They let the reader draw their own conclusions – filling in the gaps with their own fears and misconceptions. A reader presented with what looks like a trend or pattern often mistakes measurements for conclusions.
In my opinion, that’s just what Altos Research Index 10-city index that appears on HousingWire’s website did today. It’s a perfect example of reporting that lets readers infer that the housing markets must be falling again, when it might not be the case. In fact, the report even offers contradictory indicators that support the opposite conclusion, but the headline reads like the sky is falling in 25 of 26 markets nationwide.
The report’s headline: “List Prices Declined in 25 of 26 Markets: Altos Research Index”
List prices? Really? That’s what we’re reporting in the middle of the deepest recession in the housing market in a century? For the few people who might not know, the list price is the asking price usually set by the seller and which the agent dutifully enters into the local MLS system.
The List price is the asking price. Period. Not the final sale price. And everyone alive knows that the single greatest certainty in the housing market was, is, and forever shall be that sellers will ask more for their houses than the market will bear. Or they will ultimately get.
That goes double during a prolonged housing recession.
List prices decline all the time. It’s a given that if the average listing agreement in America is 6 or 12 months duration, the seller will play games with the broker’s money. Why not try to find a dumb buyer who will overpay for their home. (See our related article, “Why Overprice if Just a Little“) Sellers will try out a price, then drop the price in 30 days. Most end up dropping it multiple times during the listing period.
Big deal. That’s not news.
It’s called life in real estate. It’s what happens when real estate agents agree to take over-priced inventory and place it in MLS and show it to buyers who laugh at them and wait around until the sellers’ distress reaches higher levels and then – wham! – the list price falls. Falling listing prices don’t necessarily mean a declining market; They aren’t market indicators at all.
Falling list prices simply reflect dumb pricing decisions by some sellers and their agents.
In fact, the report indicated that the amount of inventory was falling in some markets. With fewer homes for sale in the same markets shouldn’t list prices be rising?
Not at all. Remember, the initial list prices for some homes is so high – so ridiculously, laughably, fantastically outside the realm of buyer demand – that even with inventory is falling, some list prices will still fall. The market – defined as the place where properly priced homes are naturally absorbed by agreeable buyers – might be humming along quite nicely in the very same neighborhoods where overpriced listings are falling, month after month.
Yet the Altos report makes it seem there’s a problem because “list” prices are falling. At least, that’s what the headline infers.
It’s really not helpful to the modern consumer for these kinds of reports to hit the news. Listing prices are notoriously fickle; they reflect emotional whims of sellers and spineless agents who bring “to market” unsellable inventory that sits and rots until the price falls. Falling listing prices mean nothing more than some people still refuse to make objective pricing decisions. Falling listing prices means too many real estate practitioners who are just that: “practicing.”
A better headline for this report might have been any of these:
- Some home sellers still don’t get it; nor their agents.
- Falling list prices reflect fantasy expectations by sellers.
- Too many sellers still pricing themselves out of the market.
- Sellers finally understand buyers set the price, and adjust downward.
The last one is the most generous, of course, giving sellers the benefit of the doubt that they eventually “learn” that their overpriced house must fall in price to attract buyers, who control today’s marketplace.
But let’s not confuse the public – or the industry – any further with context-less reports like these. List prices can fall in any market – even hot ones – because it’s possible to “list” a home at any number that flits into the sellers’ heads. More helpful would be reports that focused on sold prices – the price that reflected where the meaningful market activity actually happened. Admittedly, the report caught my attention, which may have been its only objective. But other readers who don’t actually understand the nuance of reporting list prices might otherwise conclude – erroneously – that markets are falling when in fact, a great many are not.