Real Estate Bubble Debate

Chat about Jan. 2006 home sales in Boston / Massachusetts

The Massachusetts Association of Realtors is expected to post January sales statistics to their web site sometime around noon today.  To help make sense of them, The Real Estate Cafe is hosting four chats through the day which the public can join as a guest (if you are unable to see any graphics when you enter the chat room, try clicking on the link below): 

Bubble Hour #1:  Noon to 1pm

Transcript & graphs since 7:20am now online.

Bubble Hour #2:  6:30 to 7:30pm

If there is interest, we'll do this one in person at Borders Bookstore Cafe @ CambridgeSide Galleria tonight or maybe tomorrow.  Please RSVP in advance so we can make that decision.

Bubble Hour #3:  8:00pm to 9pm

We anticipate the largest number of participants for this Bubble Hour, including a special guest from one of that state registry of deeds who will share some statistics for February, three weeks ahead of the Mass. Association of Realtors release their own.

Bubble Hour #4:  11pm to midnight

We have a number of people who house hunt just before heading to bed so to accommodate them, we'll host one more bubble hour today

We've already begun posting some content on line, and invite your comments and questions here or in the chat room.  One note of caution:  overall market statistics, like those being released today by the Mass. Association of Realtors, are often too broad to translate into meaningful information at the local level. That's one of the reasons chat participants with different perspectives --- both geographically and with respect to their opinion about the housing bubble -- are welcome.  (As always, you can also call our reader line to record your own sound bite:  617-876-2117 for potential use in a future podcast.)

Survey results: Where are housing prices headed in 2006?

It's good to be posting original content to The Real Estate Cafe's blog again after our second bout of bloggers block. Like the first time, the slump lasted for nearly 50 days but this time we had an excuse:  we've been waiting for enough responses to go public with our 2006 homebuyer survey.  The first of them appears above, and if you click on the image to enlarge it, the results speak for themselves. 

We'll post more results in coming days, as well as commentary on the findings and their potential implications for homebuyers and sellers in Greater Boston.  The survey is closed at this point, but you can comment online or by record a sound bite, for potential use our real estate bubble audio time capsule (a.k.a. podcast), by calling on our reader line:  617-876-2117.

Event planning:  Discuss housing bubble and survey results in person with other homebuyers & sellers

More than 40% of the survey respondents said they would like a monthly (or bi-weekly) update on the real estate bubble, and we have already corresponded with several other bloggers in New England -- LowellDeeds.com, BostonBubble.com, and MassHouseMarket.blogspot.com -- about getting together offline to exchange perspectives with the public.  Would Thursday night meetings in Cambridge work for everyone?  Your feedback is welcome below or by emailing us privately at [email protected]

Party like it's 1773... ...or should we say, like the real estate party's over?

Yankees vs. Red Sox rivalries aside, Inman New's recent blog post about a Great Gatsby-esque real estate party in the Big Apple, described as an "elbow-to-elbow soiree straight out of Hollywood... that attracted at least 1,000 of the city's brokers and agents," had readers in Boston gagging and giggling.   

Anyone who thinks the good times will continue to roll in real estate is in for a Big Surprise, which is why bloggers in Boston secretly used the 232nd anniversary of the Boston Tea Party to plan a series of "Boston Realty Parties" celebrating the end of the housing bubble here and beginning of the first buyers' market in more than a decade.

The upcoming series of events will inform and protect real estate consumers, and aspires to bring about long overdue industry reforms (like rebelling against obsolete real estate commissions that are akin to excessive taxes on tea two hundred years ago.)  Don't believe the party's over in Boston?  Check out the (1) housing price index graphs by one of The Real Estate Cafe's buyer agents / real estate consultants, (2) view our recent series of bar charts analyzing market statistics behind the  "hard landing" for the Boston housing market, or (3) scan the Boston Globe stories and video clip on Boston.com.

While the photo above was taken at the historic tea party site in Boston Harbor, the "Coming soon" sign points to the "coming slowdown," as Business Week called it, in other housing markets, while documenting the importance of December 16, 1773 in American history (click on photo to enlarge).  Why was the photo taken at night?  Check your high school history books or visit the Boston Tea Party's web site to find out. 

Holiday homebuyers: 1 in 5 homes sells for at least 10% off, expect more this year!

How much excess housing inventory is on the market in Massachusetts compared to past years, and what will that mean to holiday homebuyers?  According a Boston Globe article entitled, Season can leave buyers in good cheer (November 30, 2003)

"...November and December are typically the two months with the fewest number of houses for sale. Between 1997 and 2002, the average number of homes on the market in Massachusetts in any given month was 33,636. The November average was 29,733, and the December average was 28,378."

Two years later, a simple tally of MLS listings in Massachusetts shows 44,646 single family, condominium, and multi-family properties currently on the market.  Add land parcels, and that number rises to 47,476 listings.  If you use the first figure, the inventory is up by 50% over November 2003.  If you use the second, inventory is up over 60%. 

What's that mean for the average homebuyer?  As The Real Estate Cafe told the Boston Globe in November 2003, end of season markdowns make the holidays an ideal time for homebuyers to bargain hunt:

According to [our] analysis of listing data between 1996 and 2002, one in five Massachusetts properties that went under agreement between Thanksgiving and New Year's Day sold for at least 10 percent below the original asking price. 

Larger savings are possible this year because of the oversupply of inventory and the soaring number of expired listings as shown in the graph above (click on image for larger view).  If you'd like to learn how you can time the market to maximize your savings and stretch your savings enough further with our unrivaled commission rebates, give us a call at 617-661-4046 or email us [email protected]

Mass. Exodus: A generation & housing market in transition

MassInc, a public interest research group, released their newest report this morning, "A Generation in Transition:  A Survey of Bay State Baby Boomers."  The survey asked 1,000 baby boomers in Massachusetts about "their current circumstances and future plans for work, retirement, [and] housing..."

One key finding parallels a phenomena The Real Estate Cafe has witnessed working with home buyers in suburban Boston, where it sometimes appears that neighborhoods are "turning over:"

"The survey also foreshadows a new boomer exodus from Massachusetts – exacerbating the state’s population loss challenge. More than one-third of baby boomers (35 percent), roughly 650,000 people or 10 percent of the state’s population, want to retire outside of Massachusetts."

"There are 1.83 million boomers in Massachusetts, accounting for nearly 30 percent of the state’s population and roughly 45 percent of its workforce. The first baby boomers turn 60 in January 2006."

About a decade ago, 2006 was the date some economists predicted would be a tipping point in the housing market.  More recently industry observers have said that housing demand from baby boomers is increasing, and that traditional assumptions about downsizing and relocating are obsolete.  MassInc's report demands closer reading to make more sense of those conflicting scenarios.

While I've yet to read the full report, my working hypothesis is that the "Mass. exodus" -- pun intended -- is bad news for sellers who are already confronting falling prices, a record number of expired listings, and the first buyers' market in a decade. 650,000 people represents about ten years worth of housing inventory. Granted, not all baby boomers live alone, so cut that number by half or one third.  That still leaves five to seven years supply of housing, presumably single family homes.  How fast will they come on to the market?  What impact will those units have on sales prices, especially if energy prices and interest rates continue to rise?

My guess is that those kind of questions are addressed in the report, and will be discussed in a roundtable discussion on Friday, December 2, 2005, 8:00 to 10:00am at the Westin Copley Place Boston.  Until then, your comments are welcome here online, or on The Real Estate Cafe's readers' line, 617-876-2117.

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 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).

Expired listings: Leading indicator of real estate bubble

Click on graph for larger view (you may need to turn off your pop-up blocker.)

Globe warns "Mortgage trend poses risks in downturn"

My compliments to the Boston Globe for running their third front page story on real estate in the last four weeks (see previous blog posts on May 20th and May 3rd).  Today's lead story, Mortgage trend poses risks in downturn, is the first to raise cautions about the downside of the real estate bubble to the lead headline and includes an alarming graph showing that interest-only loans and adjustable rate loans made up about 70 percent of all loans in Massachusetts last year, and just under 60 percent currently.  Those market trends are even more troublesome when one adds no money down deals or sub-prime loans. According to the Washington Spectator, one in four loans nationwide involve sub-prime loans. 

So what is any ordinary buyer to do now to protect themselves, now that there are signs the real estate market has peaked as reported six days ago in another Globe story entitled:  State home sales sag 10% in April?

The Wall Street Journal's online site, RealEstateJournal.com, has been raising concerns about risky loans since last fall, and has written a number of articles to help buyers "Know the Real Price of New Mortgages."  One encourages buyers to exercise due diligence and includes a link to an innovative negative-amortization calculator:

If you're considering an ARM and aren't sure whether a sudden jump in rates would break the bank, ask your broker to run a worst-case scenario for monthly payments and outstanding loan balance, based on the highest rate you could potentially be charged. This negative-amortization calculator from the Web site of Jack Guttentag, professor emeritus at the Wharton School of the University of Pennsylvania, also offers a stark look at how homeowners with these types of loans can get burned should interest rates turn sharply higher.

If as the Globe writes, "analysts fret over use of interest-only loans," you should look carefully, too, particularly if you are first-time homebuyer.  Real estate decisions involve a complex, imprecise set of factors and online calculators "don't take into account individual circumstances" as the WSJ wrote in an article a year ago on "Five Reasons to Remain in Your Rental Property."  Today's lead story on "timing the market" in RealEstateJournal.com says some long time homeowners are "tempted to sell, reap a huge profit -- and rent for a while to wait until prices possibly come down." 

Locally, that could result in more inventory on the housing market, and softening prices -- regardless of what kind of loan you use -- by the end of the year.  If "worse-case scenarios" play out and new homeowners are forced to sell in coming years because of they can no longer afford monthly payments on their interest-only or adjustable rate mortgages, today's rising inventory of unsold homes could become bloated and some sellers may be forced to sell at a loss.