Are home sellers in denial?

I ask myself that question when I look at homes for sale in my neighborhood. Given the hype about the collapsing housing
market, I expect to see homes priced 10 percent or 15 percent lower than a couple years ago, when I was in the midst of home shopping.

Instead, best I can tell, home sellers are asking about 2 percent to 4 percent less than they were back then. I grant you that my little survey is
highly unscientific, but I am looking at the same styles of homes in the same neighborhood and I've done the math.

I also will grant you that home sellers today may be negotiating far steeper discounts from their asking price than they were two years ago. But the point is their starting points are not much less.

On the one hand, I understand the psychology of sellers; they don't want to price their houses at the low end for fear they may be giving away too much.

But on the other hand, that strategy seems terribly flawed. Buyers and sellers know what's going on: There are more sellers than buyers, and the buyers are having
trouble getting loans.
I would think sellers want to entice quick interest by pricing the house as low as they could stomach.
In other words, it would be better to price a home low and try to hold to that price than set the price high and allow furious price chopping.

The problem with pricing a house at the high end is that would-be buyers may be scared off.

Here's an example. A couple months ago I toured a house I liked, and I remarked to the
seller's agent that the price seemed a bit high.
She smiled and said I could make an offer that I thought was more reasonable. That was the right thing for her to say, but my honest response would have been something like: "OK. Your price minus 20 percent."

But, it occurred to me, the sellers would be wounded by my low offer, perhaps poisoning any relationship. Maybe, it also occurred to me, they're just unrealistic people the kind you don't want to enter a long period of negotiations with. Maybe it would take a long and painful time for them to arrive at a price in the middle.

I just didn't want to get started. Instead, I said "No, thanks" and walked out.

So, I'm left to wonder: If home sellers still are asking relatively high prices, does that mean home sales and prices are more buoyant than I thought? The numbers sure don't imply that. The number of homes that changed hands in December swooned 66 percent from a year earlier. The median price of $510,000 was down 7 percent and well down from the peak of $585,000 earlier in 2007.

The S & P;/Case-Shiller Home Price Index that measures individual home prices said they were down almost 9 percent in October in Los Angeles. You could argue that the price declines are in the single digits, not double digits, but they're clearly headed down and picking up speed.

Instead, I think sellers are in denial. They just can't bring themselves to cut their price by 10 percent or so. They're missing potential sales by failing to reduce prices.

By the way, that home I liked is still for sale. For the same asking price.

Charles Crumpley is editor of the Business Journal. He can be reached at ccrumpley@labusinessjournal.com .

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