If you're gonna sell, sell now

Your house is worth less than you think. And it's probably not going to rise any time soon.

I was chatting to a friend the other day about house prices. She’d like to sell her house and move to somewhere smaller, but she’s not willing to sell at her estate agent’s valuation. She think her house is worth more than that, and she’s going to wait until house prices have risen a fair bit before she sells.

My friend isn’t alone. Halifax has reported that many potential sellers are holding back because they think prices are too low.

Sadly, I fear all these potential sellers are wrong. Look at this forecast from the highly respected economists at the NIESR.

They have predicted that inflation-adjusted house prices will fall by 4.5% this year. They then expect further falls of 1.5% a year right through till 2016. Given the gloomy outlook for the economy, I suspect the economists are right.

There appears to be a bit of a psychological issue here too. A US study shows that many home owners are kidding themselves about the value of their home, and this was the case long before the financial crisis. The study shows that, on average, home owners overestimate the value of their properties by between 6 and 10%. Owners who bought their homes when the economy was booming are especially likely to be wrong.

So all these potential sellers are holding back thanks to a delusion.

Eventually, the sellers will have to accept reality and sell at less than their target price. When they do that, there will be more houses on the market, and the extra supply will be a further constraint on house price rises.

My friend should beat the rush and sell her home now.

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