August 23, 2005
Headlines & talk shows track real estate bubble in Boston & beyond
Monday night, WBZ-AM radio talk show host Paul Sullivan tossed incoming MAR president Dave Wluka some easy questions on the subject. When Sullivan opened by asking whether someone buying a home now might be in danger of buying at the height of the market, Wluka responded "no" and tried to justify his opinion by talking about supply and demand as well as constraints on new housing development.
For the balance of the hour, Sullivan missed the opportunity to probe deeper and challenge Wluka for some worst case scenarios regarding the real estate bubble, including the likelihood of foreclosures. (Sullivan ought to know something about foreclosures: he's from Lowell, Massachusetts, one of the communities hit hardest by foreclosures in the last real estate recession.)
In contrast, Business Week and the New York Times aren't ducking the subject of foreclosures or other worse case scenarios. Business Week's story on the high number of highly-leveraged homebuyers who may be in danger of foreclosure is the first time I've seen Coldwell Banker's CEO tell buyers to "look at the worst case scenario." Robert Shiller's predictions in the Times are the worst I've seen, period. They should be required reading for homebuyers worried about falling prices. Can you believe that graph?
As downpayments shrink sharply, highly leveraged homebuyers may be in for a fall
More and more homebuyers are discovering that in a bull market, acquiring assets with other people's money is the path to riches. They're borrowing a rising percentage of their purchase prices, contributing to the housing boom. The danger is that if prices begin to fall, people who have stretched to buy houses with 100% financing will be under water on their mortgages and at risk of default if they have to sell. "I always tell people, look at the worst scenario," says James R. Gillespie, chief executive of Coldwell Banker Real Estate Corp. But many buyers ignore the warning.
Buyers ignore Robert Shiller stunning warning in a New York Times article this weekend, and the accompanying chart, at their own risk. Shiller "predicts that prices could fall 40 percent in inflation-adjusted terms over the next generation and that the end of the bubble will probably cause a recession at some point." Instead of pressing Waluka for his response to that or any worst case scenario, Sullivan let time run out and Wluka told listeners that the "The [Massachusetts] market remains quite hot..."
Within 36 hours, his rosy comments were refuted by radio and newspaper stories, including the Boston Globe's lead story on page one (see photo above), which quoted statistics from his own organization documenting the fact that sales of existing single family homes dropped for the third month out of past four in Massachusetts. There are other signs the market is slowing in Massachusetts including a record number of expired listings this summer (watch for upcoming post and graph).
Wluka is an intelligent spokesperson for the Mass. Association of Realtors (MAR) and a credible leader for the tough times ahead. He will serve MAR well but he would serve the public better with some more straight talk. Perhaps Barry Nystedt, the President of the Mass. Association of Buyers agents, will do that Thursday at 12:30pm when he appears on New England Cable News with Kim Blanton, the author of the Globe's lead story today.
Instead of glossing over the serious questions raised by the housing bubble debate (with comments reminiscent of an op-ed this week in the New York Times entitled "Bubble? What Bubble?), isn't it reasonable to ask industry leaders for best case and worst case scenarios so homebuyers and sellers can assess the risks posed by the changing market and protect themselves from the real estate bubble?
Regardless of what industry leaders say or what local and national talk show hosts ask, consumers are clearly talking about the real estate bubble. The Globe's story entitled, "Home sales slip again, condos surge: Data suggest local prices may be cooling" was the most emailed story of the day by a wide margin -- more than the next six leading stories put together.
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This story is right on! For the last few months the San Diego CA real estate market has taken a turn down. Homes for sale are DOUBLE what they were a year ago. Market times are almost double also.
Ask price reductions are becomming the norm. Sure, the self-serving insiders' say it's just a slow down or return to the norm.
But, with an average 20% appreciation for the last five years, plus the EZ qualification 100% adjustable mortgages, I believe we are in for at least a 40% drop.
If anyone want to view the current San Diego real estate activity here are a few top sites:
Posted by: San Diego real estate | Aug 28, 2005 5:57:55 PM
As soon as people start talking about a housing bubble, the wheels are set in motion for a price downturn. Anyone who denies it usually just bought and are hoping their house value doesn't drop.
Posted by: The Dude | Aug 30, 2005 3:23:59 PM
It is good that real estate bubble is making headlines because it will automatically alert people who wants to buy property in the coming days or weeks.
Posted by: Rajinder Dogra | Oct 3, 2005 7:01:01 AM
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