Homeowners have the last say in how much their home is worth, regardless of what you think

There are some pretty ugly stories surfacing about neighbors getting angry at neighbors for listing their homes for certain prices and stories of threats and retaliations towards Realtors who assist sellers with aggressive (realistic?) pricing. These homeowners are taking out their anger on the wrong folks.

If you own a home and think that what your neighbor does or doesn’t do has anything to do with where the price of your home is headed you only have part of the story. While what homes in your neighborhood sell for determine the value of your home; your neighbor’s listing price is not some arbitrarily low number that they chose just to piss you off.

As this article from the NYC Housing Bubble Blog highlights its the home builders that are the ones really controlling the home prices in the market. Why? It’s analogous to hedge funds setting the prices of certain stocks on Wall Street. Here’s how.

Just like large hedge and pension funds ultimately control the price of a given stock by buying and selling HUGE positions at any given time; home builders can ultimately impact the local housing market by dumping a large amount of property on the market at a reduced price.

By flooding the local market with cheap supply the home builder puts downward pressure on pricing in the area. They do this because although they might sell the home for 20% less than they would have 6 months ago, at least they are able to get the home off of their books and stop eating the interest and land costs associated with the home.

Most developments are bought with borrowed money by the home builder who then pays interest on the money until the loan is repaid; via the sale of the homes that ultimately go on the land. Factor in the interest in other carrying costs in a development and you can see why a home builder would want to slash prices on individual units to break even, make a small profit or simply mitigate a money-losing development.

Us as individual home owners are completely powerless to control the market. Home builders will continue to unload excess inventory at whatever price they need to to exit their position or cut their losses. You and I can’t drop our price 20% with out being in a short sale (well I can) but the builder can – and will! This will drive down the prices in your area – regardless of what the neighbor does.

So the next time you see your neighbor selling their home for less than what you think your home is worth don’t deface their sign, curse at them under your breath or give them the cold shoulder. We’re all just part of the system and as individual home owners we have zero control over how low or high our home prices go. If someone is selling for a low price there is probably a reason; seek to understand first before just making yourself look like an ignorant a** by berating them.