August 30, 2005
"Don't be fooled!" Boston.com readers warn each other about real estate bubble
Bravo, Boston.com! Looks like Boston.com launched a real estate discussion board yesterday about the real estate bubble, at least that's when the opening question above was posted. As of this posting, approximately 28 hours after the discussion was launched, there have been 43 posts and a remarkable 3666 page views. Only two other real estate discussions have had more page views, but "Important things to consider when buying" has been online for 30 days (6,968 page views or 232 per day); and the other, "Tips on moving" has been online for 22 days (6,404 page views or 291 per day). That means that people are looking at posts about the real estate bubble at a pace more than ten times faster than any previous topic.
That begs the question, why did Boston.com wait so long to post the discussion question? If we are in a housing bubble, won't more readers have been protected from potentially making the financial mistake of a life by debating the real estate bubble earlier in the housing season? The Real Estate Cafe posted it's own discussion question months ago on a banner ad on Boston.com's open house search page. It featured a photo of local celeb, Alex the Jester, and asked, "Are we in a 'Greater Fool's' housing market?"
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.
Leading indicators: Do sales of St. Joseph statues signal a housing slide?
About a week before Alan Greenspan began talking about froth
in the nation's housing market, David Lereah, the chief economist for
the National Association of Realtors surprised some of the industry
faithful at their mid-year meeting in May by cautioning that some "Local Housing Bubbles Could Burst in Next Couple of Years." According to an Inman News article by that name, Lereah listed eight "indicators a market may be headed towards a bust":
1. Home sales falling,
2. Price growth below historical average,
3. More than a 6.5-month supply of housing,
4. Properties taking longer to sell,
5. Job loss in the area,
6. Rising mortgage rates,
7. Negative net migration, and
8. Rising loan-to-value ratios.
Time to add a 9th indicator to the list: sales of St. Joseph statues are soaring.
"...does St. Joseph know something the rest of us don't about an impending pop in the real estate bubble?" an article in the New Jersey-based StarLedger.com asked on Friday, August 19th.
They reported, "Phil Cates, who founded the Modesto, Calif.-based StJosephStatue.com in 1996, thinks he might. Cates packages the statues in a kit for $9.95, and says sales are up 50 percent this year." Closer to home, a Catholic supply store in Sayville, NY called "Our Daily Bread "has sold five times as many statues compared to last year."
Silliness and superstition aside, watch for the Mass. Association of Realtors to announce that sales of single family homes have dropped by nearly 10 percent in July 2005 compared to the same period last year -- the 3rd drop of that magnitude in the past four months. Add that to a record number of expired listings over the summer (the 10th indicator of a market heading for a bust and subject of a coming post), and you can understand why sellers are resorting to superstition to sell homes.
(The Real Estate Cafe first questioned the practice of burying St. Joseph upside down to expedite real estate sales in an unpublished letter to Inman News in April 1998 entitled "Doing Justice to the Just Man." Copies available upon request.)
August 15, 2005
Buyer agents' chatter revealing what's really going on behind housing stats?
The Massachusetts Association of Realtors releases housing statistics for the second quarter of 2005 today. Since that's the strongest season of the year, it will mostly likely give home buyers the wrong impression about what really going on in the local housing market. For that, you need to listen to the chatter between real estate professionals, particularly buyer agents on their own password protected mail lists (something you can't do ;-). There, buyer agents in different areas have already begun asking their peers if they are also seeing a new phenomena in the market: houses selling for below their appraised value. That's right, not below their asking price, but below their appraised value. That either means that those lucky homebuyers just made money on their purchase (the difference between their purchase price and the appraised value of the property) because they were smart enough to use a REAL buyer agent, or that prices are already falling but that emerging trend has yet to appear in statistics. Time will tell if these are isolated incidents or not. In the meantime, put MAR's upcoming stats into seasonal context or a longer timeframe. Some argue the 2nd quarter statistics may reflect the top of the market, and years from now will be regarded as a turning point before the housing industry slid into a multi-year recession.
August 13, 2005
Use a buyer agent to "Steer Clear Of Bubble Trouble"
Looking for the latest advice on how to protect yourself if you're thinking of buying a home in these uncertain times? Business Week's latest article, Steering Clear Of Bubble Trouble, is worth reading. If you want the 10 second executive summary, a link to the article recommends doing four things if you are "bearish on housing": Refinance, Move, Sell, or Take out. (As you will read, their list should have included a fifth bullet point: use a buyer agent.)
Still, the article admits things aren't that simple. There are mixed signals coming out of local markets like Boston, where The Real Estate Cafe is located; and which PMI, as reported by Kiplinger, says "is the riskiest housing market in that nation." My favorite quote from the Business Week article reads:
In the absence of solid information, the most sound advice is to hope for the best and prepare for the worst.
Without pretending to be economists, and running the risk of being criticized by some for stressing the worst that can happen, The Real Estate Cafe will continue to try to help buyers make sense of important trends by providing timely data like that reported in the Boston Globe's front page story on July 22, 2005. That article, entitled "Home won't sell? Some cancel and relist", included a graph showing The Real Estate Cafe's analysis of MLS data on page B5, and a quote from one of our buyers (click on the link below for pull quotes).
Kudos to the Massachusetts Association of Buyer Agents's president, Barry Nystedt, for his contribution to the Globe article and the important role their members play helping their clients "steer clear of bubble trouble," as Business Week says. Think you'll get that kind of protection from a new breed of counterfeit buyers agents in Massachusetts, calling themselves "designated agents"? Not if their office is also representing the seller of the same property you are bidding on, which is why Business Week should have added a fifth point to their executive summary:
If you are buying in an overheated housing market, or anywhere for that matter, use a REAL buyer agent who does not have a potential conflict of interest. (For more information on finding an exclusive buyer agent, you download a consumer brochure from AgencyInformation.org or contact The Real Estate Cafe. We'd be glad to make an instate or out-of-state referral as we did recently to Washington, DC.)
Home won't sell? Some cancel and relist
Kim Blanton, Boston Globe
Friday, June 22, 2005
Pull quote from page B5
The number of MLS Property cancellations is rising, an indication that agents are refreshing listings on tough-to-sell houses or frustrated homeowners are pulling houses off the market because they can't get their asking price. MLS had 10,606 cancellations in the first six months of 2005 compared with 9,722 in the first six months of 2004, according to an analysis of MLS data by Bill Wendel, owner of The Real Estate Cafe in Cambridge. In the first six months of 2001, just 3,736 listings were canceled.
In a recent spot check of houses for sale on MLS in Middlesex County, Barry Nystedt, president of the Massachusetts Association of Buyer Agents, said one in four listings canceled between May 25 and June 25 was recreated by the same firm with a new MLS number. The problem for buyers is that if their agent is unfamiliar with a neighborhood, the agent ''may convey to your buyer, 'This is a new listing, let's go look at it,' when in fact it's not a new listing," said Maribeth Boisvert, with Coldwell Banker Residential Brokerage in Shrewsbury.
Jonathan Cohen, who will relocate from New York to attend Harvard Law School this fall and was briefly house-hunting, said knowing how long a property has been for sale is essential when placing a bid. The securities trader said it is more important for houses than for securities, because ''every house is different, every neighborhood is different."
August 11, 2005
Real Estate Blogs: "Post or Perish"
For the past 50 days, The Real Estate Cafe has been living it's own case study, trying to find out whether blogging really influences how many people visit our site. Yes, during our mini-sabbatical, we've been working on some exciting things behind the scenes and collecting lots of audio files for a podcast. And yes, we were interviewed by the Center for Realtor Technology (even though we are NOT Realtors) for their report on blogging in real estate which was released today. But most importantly, we participated in RadioOpenSource.org's program on "The Beginning of the End of the Real Estate Bubble," and two clips from our real estate bubble audio time capsule were played on the national broadcast (which was their first on XM radio! Exciting!)
Truth be told, we have also been suffering (at least tongue in cheek) from "Bloggers Depression." But after reading this remarkable publication, complete with reassuring illustrations like the one above, it's a relief to know we are not alone and that we no longer need to suffer in silence!
So a word to the wise. Any Realtors reading this who think they can jump into the blogosphere and see an immediate surge in their Google rankings and online leads, be forwarded that creating "the ultimate traffic-building tool," as the Center for Realtor Technology (CRT) calls it, may come at the cost: your free time (what free time, right?) and mental health. Posting daily takes discipline and diligence, and if you stop you may experience the same thing we have:
Our pageviews have dropped 90 percent in the last 50 days.
Bottomline: Consumers, both buyers and sellers, and looking for local experts who can provide timely, credible insight into their market. In a town where "publish or perish" is the mantra for faculty hiring committees and junior faculty alike, the new buzz words for would be real estate bloggers is "post or perish."