We always want to make sure that we get at least a fair price for anything we are selling. Truth be told, we hope we get top dollar and would not be upset if a buyer was willing to pay a premium above that. The same dynamics come into place when we are selling a home. We want at least a fair price. We usually list our house for a price above that hoping to either find a buyer willing to overpay or, at least, leave ourselves with some room to negotiate.

That is a dangerous strategy in today’s real estate market. The concept above depends on one of two things:

1. Prices are stable and, if I do have to lower my asking price at some future point in time, I will still be able to sell it for today’s current value.
2. Prices are appreciating and, if I can’t get my price right now, I just have to wait until the market catches up.

Neither one of those scenarios exist today.  Individual home prices are decreasing in almost every market and as we move forward depreciation will actually accelerate. All pricing is dependent on supply and demand. Let’s look at how both will impact prices as we go through the next few months.

DEMAND

Many housing analysts now believe that the Home Buyer Tax Credit did not increase demand. It seems what the credit did was drag demand forward. A percentage of the people who would have purchased in the second half of the year decided to move their plans up to take advantage of the ‘free’ money.

The Wall Street Journal reported:

There are clear signs that demand was pulled forward from the late spring and summer into March and April.

Housing Wire reported:

The tax credit pulled sales forward in April but “left a vacuum of demand” that will persist through the summer.

Demand, at best, will remain stable through the next several months.

SUPPLY

The other end of the pricing equation (supply) looks much more troubling as we move forward. A great guideline to use to determine future pricing is month’s supply of inventory.

• 1-4 month’s inventory is a sellers’ market where appreciation usually occurs.
• 5-6 months is a normal market with prices staying just ahead of inflation.
• 7+ months creates a buyers’ market where depreciation usually occurs.

The increase in sales at the original expiration of the tax credit (Nov 30, 2009) drove down the month’s supply of housing inventory to normal levels (6.5 months). However, the extension of the tax credit did not have the same impact on supply as the inventory currently stands at 8.3 months.

Couple that with the fact that banks will repossess approximately a million foreclosed homes this year and you realize the supply of housing inventory could jump to numbers close to those we experienced when home prices were falling dramatically.

What does this mean to you?

If you plan to sell this year, the value of your home is probably highest right now. You will continue to lose value as the year closes out.