Chasing The Declining Price Curve

Posted at 3:47 PM, Mar. 26, 2008

The following graph illustrates a common pricing phenomenon experienced in a declining market.  The dashed green line represents the current market value of a home and it shows that the value is going down over time.  The red line is the price point the seller selects when they put the house in the market.

There are a number of lessons we can glean from the illustration, the first being that overpricing a home is a sure way not to sell it.  However, in a rising market, sometimes the market will catch up with an overpriced home.  In a declining market, if you don't adjust your price quickly you end up losing equity simply by extending the time a home is on the market.  That first price reduction illustrated on the graph probably would have been a very good place to be if it had been set earlier.  But, by the time the seller moves to that price point the market has moved on and it's no longer deemed an attractive price, and so the chase down the price curve begins.

Now the hard part, we're not always in a position to know how quickly the market is moving.  But, keep the above principle in mind.  Delaying your response to what the market is telling you can cost you money.  Stay ahead of the price curve.