Are Home Prices Too High??



After reading a few questions on another site’s blog regarding, “Are home prices too high?” and the subsequent comments peeked my interest. I hear and read frequently that same question. Let’s look at how it is in the “real world” of real estate prices which is basically the same as selling a car, a suit of clothes, or a loaf of bread.

If I want to buy a suit of clothes and the store is asking more than I think it is worth I will pass it up and not buy it for their price. A clothing store has set prices and we in this country do not bargain like some other cultures. The same is true with that loaf of bread.

However, buying some items like a home or a car it is not uncommon for buyers and sellers to negotiate at “an arm’s length agreement” as it is called. In other words if the buyer doesn’t want to pay the asking price then they make an offer which the seller can either accept, reject, or make a counter offer to the buyer. When an agreement on the price is reached between the parties then that is the value of the home. If no buyers are interested in the home then the “asking price” is too high and the home sits on the market until the seller adjusts their asking price closer to the actual current market value. As supply and demand ebbs and flows so do the market values. That is one reason why home values fluctuate and timing, just like location, is critical.

If the home is financed with a mortgage then the lender sends out an appraiser to protect the lender’s stake in the property. The appraiser is looking for similar homes which have recently sold to justify the value to the lender.

Home values are set by demand for that home which is in direct proportion to the amount of supply at any given time. Example if there is one buyer and 10 homes then due to the number of homes (supply) the value is lower. On the other hand if there were 10 buyers and one home the price would be higher.

So when you hear that question,” Are home prices too high” now you can put that into proper perspective and make it work to your advantage.