Holdouts clog up housing market

Glen Creno
The Arizona Republic
Jun. 10, 2006 12:00 AM

Stubborn home sellers holding out for big money are clogging metropolitan Phoenix's housing market.

Too many of these homeowners haven't shaken off the hangover of last year's home-buying binge, when sellers could name their price and get it.

Market professionals say many owners continue to believe that the neighbor who sold for top dollar last year set the market price, not the other neighbor who cut thousands from the listing price before selling last week.

"People are unrealistic about what their homes are worth," said Brooke Castaneda of Keller Williams Northeast Realty. "A lot of sellers thought their homes would have these phantom profits. . . . They're not accepting that that isn't the case anymore."

The Valley's housing market is unrecognizable from a year ago, when there were about 9,400 houses on the Arizona Regional Multiple Listing system in May and buyers were paying top dollar just to get a home even if it wasn't exactly what they wanted. Now, the figure exceeds 43,000, a record.

Houses sold in an average of 29.6 days in April 2005, compared with the 57.5 days in April this year. May's figures for time on the market haven't been released, but agents say the situation isn't improving.

Housing experts blame some of the longer selling time on overpriced houses, which linger on the market and push up inventory. That sends a message to buyers: There are plenty of houses. Keep shopping. Hold out for a bargain.

With sellers not selling and buyers waiting, the market can falter. That's not good news in metro Phoenix, where at least $1 of every $3 generated in the economy comes from housing.

Testing the waters

Some owners have put their homes on the market simply to see how much they can get for them. That is why there are for-sale signs in practically every other yard in some neighborhoods, real estate agents say.

Those sellers stick to their unrealistic sales prices because they don't need to sell.

Motivated sellers are beginning to drop their prices, in some cases by tens or hundreds of thousands of dollars.

But some sellers must stick to their prices even if they are too high because they tapped their home equity with credit lines, assuming last year's big gains in appreciation would continue. They didn't, and rising interest rates have bumped the cost of the credit lines.

Now, these owners must sell for a certain figure to pay off all the home's debt. Some of them have contracts to buy new homes and are expecting to make a target amount on their existing home to keep their new mortgages affordable. They're stuck in an equity trap.

"They have to be more stubborn," said Joel Auernheimer a Realty Executives agent in Phoenix. "They have to sell it at market price plus $20,000 so they don't have to bring cash to the closing."

Buyers see listings climbing, houses lingering on the market and price being reduced and conclude that the signs are pointing to an eventual drop in prices. So they wait.

So far, though, prices are holding steady: The typical Valley resale house was selling for a nearly record $264,900 in April, up nearly 20 percent in a year, according to the Arizona Real Estate Center at Arizona State University Polytechnic. The price notched a bit higher, to $265,000, in May.

The lack of commitment from buyers is evident in sales, which surpass prices as a leading indicator of a market's health, said Lawrence Yun, an economist with the National Association of Realtors in Washington, D.C. The Arizona Regional Multiple Listing says 8,866 single-family houses sold in April 2005. The figure was 6,176 in April of this year, a 30 percent decline.

"Basically, the question is: Where are the buyers? Can the buyers afford our market or are they just waiting for the prices to come down?" asked Jim Sexton, designated broker of John Hall & Associates.

Yun thinks a lot of people postponed selling because prices were moving strongly higher last year. Now, they're dumping houses, trying to cash in after the boom has faded.

"Home sellers are usually the last to know (when the market changes)," he said. "They believe if their neighbor sold for a higher price, they can get that, too."

That doesn't mean a homeowner needs to take a loss. But agents say it's time for sellers to get realistic if they haven't done so. The most motivated ones have their houses in immaculate shape and have an accurate take on area prices.

Some sellers believe they don't have to lift a finger to get their asking price. That may have been true during the boom when there were bidding wars for houses. But there are no bidding wars today.

Setting realistic prices

Agents say investors, who have mostly fled the Valley's market, are dispassionate and realistic about setting prices. Investors see the property for its potential to deliver money. They don't live in the house.

Typical homeowners may have a stronger connection. Their children grew up there. They made painstaking renovations. Those sellers use a different method to calculate value and can be insulted when a potential buyer disagrees.

"It's an emotional thing," said Diane Watson of Realty Executives. "It's a matter of pride. They think their home is going to defy the law of supply and demand."

Agents say setting a price is tricky and challenging, especially in a market as dynamic and diverse as the Valley. That's why they recommend that buyers and sellers have professional representation.

Tricia Urata of Queen Creek and her husband are trying to sell their house, but they think they set the price too high based on an agent's advice.

The couple listed the house for $339,000 in March and signed a six-month contract with the agent.

Now, Tricia Urata says no serious buyers have looked at the house and the agent won't cancel the contract or lower the price, which Tricia thinks should be about $289,900. She is worried that buyers will ignore the house during the crucial summer selling season and wonders if she and her husband will be able to move into the new home being built for them.

"We are very unhappy with our own experience," she said. "I don't think we'll ever sign with a Realtor for more than 60 days, and we won't sign with anyone who says we can't cancel at any time."