House depreciation vs Bank appreciation

Recently a friend a mine decided he wanted to sell his Moreno Valley home. He purchased his home for $90K in 1995 and listed for $399K in today's wild market.

His house has been on the market for more the 6 months and has been reduced to $369K. In light of his struggles to try to sell his home I told him that he can't be stubborn (I really meant greedy) in todays market place. It is flooded with homes and unless yours stands out you must make concessions.

I reminded him that his homes value is on the decline and that he had already maximized his return on investment. I also reminded him that national Banks currently have outstanding money market and CD yeilds that he can take advantage of (if he sells his home).

Lets disect his situation:

Option 1: Stay in the house

His house value will likely be on the decline and the market will continue to be saturated by homes. This is his worse option.

Option 2: Sell home for below market value

Lets say he sells it for 300K, that is still a handsome profit, plus CD rates are in the 6-6.25% range. He would be on pace to net about $220K from his home and collect about $1200 a month interest from his CD.

Home owners must realize that even though your home has tripled in value you are only "rich on paper" until you actually sell (good luck in todays market) and by making extraordinary concessions will place yourself in a good position with banking yields accelerating.

A bird in the hand is better than two in a bush.