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Homesellers Finally Getting Real About Home Prices

One of the biggest hang-ups in the housing market is sellers’ stubborn refusal to lower the sales price of their home. We’re seeing some flexibility on this — thanks for the rash of bank-owned properties in certain communities — but not nearly enough to get us to a sustainable bottom.

That could be changing, as a couple of recent studies point out, marking a key psychological turning point in the housing crisis.  

istock_000008214703smallThe first was a Boston Fed study that found most people, when it comes to a relocation decision, are disproportionately influenced by the price of their home. If they won’t get as much as they think it’s worth, they’re less likely to move, regardless of the opportunity they’re passing up. Housing prices, more than anything else, influence moving rates.

And now, just a few weeks later, comes a survey from Challenger, Gray & Christmas Inc., that finds that 18.2% of the folks who took a new job in the first quarter did so by relocating.

That’s up from 14.3% in the previous quarter, and 11.4% in the second quarter of 2008.

In fact, it’s the highest job-seeker relocation rate since the second quarter of 2006, when it was also 18.2%. (By contrast, the relocation rate was a whopping 42% in 1986 — it fell under 20% in 2001 and has stayed there since.)

So what’s the significance in this rising relocation rate?

People are finally, finally, willing to acknowledge the inevitable economics and cut the price on their home — and cut it to a price that will compete with foreclosures and appeal to all the folks out there who are looking for a bargain.

The stubborn homeseller mentality — that I won’t sell for less than I paid for it, or not as big a gain I could have had a couple years ago — is loosening, which means house prices will be priced more realistically. This will help the market find the natural bottom.

Lower homes prices + less risk of further price drops = consumers who will be more comfortable buying a home.

And once homes start moving again (as we’re seeing in communities like Phoenix that have been hard-hit by the housing bust), we’ll all have less of that sinking feeling that our homes might be worth less than a Happy Meal.

As that lousy feeling gets replaced by more confidence, we’ll be more confident in making purchases that maybe we didn’t before as we watched our home values drop. That will benefit the economy as a whole.

A friend the other day was lamenting to me that his house was off $10,000 from where he bought it 5 years ago.

My answer, which he probably didn’t appreciate for its succinctness, was “So what?”

He plans on living there for another 20 years. He would have paid out far more in rent than he would have buying and paying for upkeep on his own. He’s ahead now, and he’ll be far ahead in 20 years.

Still, he and millions of others clung to the good old days of 2006, when our home prices were less realistic than the sweet-nothings that mortgage brokers were whispering in their client’s ears in 2001-2005.

As soon as we get beyond the opiate of 2005 housing prices, the sooner our economy will recover.