Real Estate Bubble Debate

Realtors' "Anti-bubble reports" out of sync with emerging buyers' market?

Move over St. Joseph, patron Saint of Home Sellers, a new saint's in Beantown, home of two millions Catholics.  Home buyers who have been praying for a decade for an opportunity to buy a home in Greater Boston's overheated housing market, can thank St. Jude -- patron Saint of Lost Causes -- for delivering this long awaited headline to page one of the Boston Globe on his feast day: 

Suddenly, area's housing market favors the buyers
Cooling of sales to crimp economy

PULL QUOTES:

The fall slowdown not only represents a sea for sellers, who for years have enjoyed multiple offers and higher prices, but also indicates the region's bull housing market is at an end. Real estate agents say a long-predicted market correction appears underway as the gap between the price of housing and peoples' incomes -- now even wider than at peak of the 1980s housing boom -- has become too great to sustain the recent pace of sales and appreciation.

Certainly, few expect an '80s-style collapse, when home values plunged 25 percent or more.Today, the economy and lenders are far stronger, and mortgage rates, which topped 10 percent when the last boom went bust, are far lower -- currently about 6 percent. In the 1980s, overbuilding, unsound lending practices, and intense speculation by investors, along with higher interest rates, sparked a real-estate crash.

Still, real estate agents today increasingly are telling sellers to expect lower prices than comparable sellers received six months ago. Linda O'Koniewski, owner of Re/Max Heritage in Melrose, said her brokerage is still selling houses, but at prices 5-to-10 percent lower than what comparable homes sold for in spring.

''All trends point to a correction period," she said.

With growing choices, buyer psychology has changed, brokers said. In recent years, buyers raced to make offers, convinced prices would only go higher, or even bid against each other, pushing prices up. Now, many are prepared to wait, believing that prices are coming down.

In the Boston area, the period between Thanksgiving and Christmas has historically been "let's make a deal season," with one in five homes selling for more than 10% off their original asking price according to original research by The Real Estate Cafe.  With expired listings at a record pace this summer, and thousands more expected in the remaining ten weeks of 2005, will homebuyers this year see even greater savings in the emerging buyers market?

Not if you buy the comparatively rosy picture hundreds of Realtors heard in one of the kick-off sessions at their annual convention today in San Francisco.  Entitled, "Winding Down to an Expansion," National Association of Realtors chief economist, David Lereah joked, "it's a good spin isn't it?"  Realtors are trying to spin the public perception of the real estate bubble across the country through a series of "anti-bubble reports," as Lereah described them.

Apparently, the press in Boston and prominent local economists aren't buying the spin.  While the spin is not real, the price reductions are, according to another story in the Boston Globe this week.  So, if you've been haunted by the housing bubble, are the markdowns that traditionally occur between Halloween and New Years Day reason to celebrate today's headline as an answered prayer, or time for more cautious patience before you restart your homebuying plans?

Asking prices in Boston falling faster than anticipated?

A post yesterday on Business Week's real estate blog entitled "Home price danger zones" once again cited Boston as the nation's most vulnerable housing market, according to PMI Group's quarterly survey of major housing markets.  In the past, the good news for sellers has been that "House prices are sticky, so moving to another phase in the real estate cycle can be a slow process," as the BusinessWeek blog reports.  However, that conventional wisdom comes from real estate cycles before the Internet era. 

Will housing markets correct more quickly, when millions of consumers can access current market trends instantly online?  No one knows yet, but there are signs that asking prices in Boston are falling faster than anticipated.  Asking prices in 16 suburban towns dropped nearly 15% in recent months according to MLS stats cited in the Weston Town Crier, and a Boston real estate agent who blogs has began speculating about what would happen if prices in the city drop by 10%.

The fact that home buying plans have plunged nationwide to their lowest point in a decade and locally unsold listings are expiring at a record pace could make home prices fall more quickly, too.  What's your take?  You can post your comment here, or call our reader line at 617-876-2117 to record a one to three minute sound bite that we may use as a podcast episode in our Real Estate Bubble Time Capsule.

Asking prices drop by nearly 15% in 16 suburban Boston towns

Homeowners in Greater Boston and elsewhere continue to expect "big real estate gains" despite a stunning revelation this week: "asking prices in 16 MetroWest towns have dropped by nearly 15 percent" since August, according to according to MLS statistics.  "All good things come to an end," economist and housing guru Karl Case told real estate reporter, Sue Brickman of the Weston Town Crier.  Commenting on "a spreading inventory problem" and "a sea change on the demand side which we have been expecting for a long time," Case predicted that "prices are going to fall back to a justifiable level, because people are running out of gas (interest)."  Noting that current price reductions will not show up in industry statistics for some time, Case was guarded -- but cautious -- in his assessment of the market:

"We'll see some softness for a while, but I don't see a collapse. But I say that not with a hell of a lot of conviction." 

Last year at this time, a survey by Case and his partner, Robert Shiller of "irrational exuberance fame, revealed that home owners in Boston, Milwaukee, San Francisco and California's Orange County were "counting on double-digit growth EACH YEAR for the next ten years."

Despite mounting evidence of a housing bubble, homeowners remain overwhelmingly confident about continued appreciation.  According to the Daily News Transcript, a suburban newspaper in Boston, an online survey of 1,001 consumers conducted by RBC Capital Markets revealed that:

1.  60 percent of homeowners expect the value of their homes to increase by at least 5 percent annually during the next several years;

2.  24 percent of respondents said they expect annualized gains of 10 percent or more over the next few years; and

3.  About 3 percent of respondents said they expect their home values to decline over the next few years.

That optimism is starkly out of line with short-term price changes and long-term home buying plans which recently plunged to their lowest point in a decade. Local listing agents say sellers "need to adjust their thinking and profit margins" to attract buyers.  What's your take?  Is that enough to break the stalemate in the market; or if you buy now, are you setting yourself up for a heartbreaking loss of value in coming years? Post your comments online or call The Real Estate Cafe at 617-876-2117 to leave a one to three minute sound bite (which we may include in an upcoming podcast).

Will price corrections revive slumping market?

After a series of front page stories on the real estate bubble in the Boston Globe this year, their parent company, The New York Times, put this headline on page one today: "Slowing Is Seen in Housing Prices in Hot Markets."  Citing statistics about slowing sales, rising inventories, and flattening prices in Boston and elsewhere...

The question remains whether all of this represents a momentary cooling off of some overheated housing markets, or it presages a more pronounced downturn that would end a decade-long boom.

Some economists and commentators have for years predicted the bursting of a real estate bubble, and previous slowdowns have turned out to be relatively brief pauses before prices started accelerating again.

But with mortgage rates now rising, the cost of gasoline hovering at or near $3 a gallon and house prices in some areas out of reach for many families, brokers and analysts said they thought that this slowdown could be the real thing.

Yesterday's blog post foretold one of the reasons for the slowdown:  "sellers still expect to reap double-digit price appreciation each year."  Leading listings agents quoted by the Times say overpricing is causing the market down to slow down, but that's not even on the short list of factors economists at the National Association of Realtors are watching to identify markets headed for a bust.  While we've been tracking expired listings as a leading indicator, and others in Massachusetts are watching record high inventory levels, one of the most comprehensive list of factors we've seen on why the housing market is headed for a correction or crash is coming out of San Francisco. 

What's your take?  If sellers adjust their price expectations, will the market take off again or more serious fundamentals leading to a housing recession?  Post your comments or call 617-876-2117 to record a 1 to 3 minute sound bite (which we may use in a future podcast).

From double-digit expectations to double-digit disappointments

About this time last year, CNN/Money Magazine reported that a survey by economists Karl Case of Wellesley College and Robert Shiller of Yale revealed that home owners in Boston, Milwaukee, San Francisco and California's Orange County were "counting on double-digit growth [in real estate appreciation for] EACH YEAR for the next ten years. Just twelve months later, some of those double-digit expectations are turning into double-digit disappointments, at least in Boston.  Beneath the median and average prices that Realtors report going up, up, up every month; price changes on individual properties are crushing seller expectations and falling faster than consumer confidence. 

We'd be glad to send you an example of a listing that has been canceled once, expired twice, and been listed by two different real estate agencies.  Originally listed for $750,000, the property could sell now for under $600,000 -- a savings of $150,000 or over 20%.  This trend will become more wide spread as interest rates, still near a forty year low, return to traditional levels.   

That's not the kind of information you'll get from traditional real estate listing agencies because their legal obligation is to get the highest price for their seller clients, even in a falling market.  You won't get it from dual agents or designated agents either, because representing the buyer and seller in the same transaction is an obvious conflict of interest (even if they try tell you otherwise).  So, if you'd like to learn about other double-digit markdowns in Greater Boston area (or anywhere), contact The Real Estate Cafe.  Our rebates and zero tolerance conflict of interest policy are unrivaled in New England.  For more information or a referral to someone who can help you outside Boston, email [email protected] or call 617-661-4046.