In the last few months, there has been a lot of debate surrounding the stability of home prices in Kansas City. Despite consumer’s potential fears of a market correction, many real estate experts agree that recent home price declines are not an indication of a housing bubble, but rather a result of sellers pricing their homes too high. In this article, we will shed light on how seller overpricing contributes to the fears of declining home prices.
Supply and Demand Imbalance
One of the primary reasons why home prices are not dropping in Kansas City is the persistent supply and demand imbalance in the real estate market. While demand for housing remains strong due to factors like easy access to home loans and increasing population growth, the supply of homes for sale has not been able to keep up. As a result, sellers, aware of the limited options available to buyers, tend to set higher prices, confident that they will find buyers willing to pay their asking price. This situation leads to an artificial inflation of home prices, rather than a genuine increase in their value. Although there are many motivated homebuyers in the market today, these buyers are not stupid. You simply can’t price your home $20,000 to $50,000 over the most recent sales, but we are seeing many sellers do this in our current market. Eventually, they are forced to drop their asking price if they want to sell. This is what many people are seeing in the market today and it’s why they incorrectly assume that home prices are dropping.
Emotional Attachment and Unrealistic Expectations
Homeowners often develop strong emotional attachments to their properties, which can cloud their judgment when pricing their homes for sale. They may have invested time, money, and sentimental value in their homes, leading them to believe that their property is worth far more than market conditions support. Unrealistic expectations of high returns on investment can also influence sellers’ pricing decisions. These factors contribute to the prevalence of overpriced homes and thereby creating an unrealistic asking price. Updated kitchens and bathrooms add the most value, but simple things like replacing light fixtures and flooring, or repainting a few rooms can add the biggest value.
Fear of Selling Low
During uncertain economic times or when news of a potential market downturn circulates, sellers may fear accepting lower offers for their properties. Rather than adjusting their prices to reflect market realities, they choose to keep prices high in hopes of maintaining their perceived property values. However, this strategy can deter potential buyers, leading to extended days on the market and limited sales activity. It’s been my experience that sellers typically get less money for their home when this happens.
Psychological Pricing Strategy
Sellers, with the advice of real estate agents, may employ a psychological pricing strategy known as anchoring. This strategy involves setting an initial listing price significantly higher than the property’s actual value, with the intent of negotiating down to a higher price than if the property were priced appropriately from the start. Unfortunately, this approach can lead to fewer interested buyers and a prolonged selling process. My real estate team rarely suggests using this strategy. I’ve seen it backfire too many times and cause the sellers to lose money, but it’s still a strategy that some real estate agents employ.
The supply and demand imbalance, emotional attachments, unrealistic expectations, fear of selling low, and psychological pricing strategies all contribute to the persistence of overvalued properties in the Kansas City real estate market. As buyers and sellers, it is crucial to remain informed about market conditions and work together to establish fair and realistic pricing that aligns with genuine property values. Only then can we ensure a more sustainable and transparent real estate market for everyone involved. Working with an experienced Realtor that knows the market in your area is the best advice I can give.