Real Estate Bubble Debate

Real estate bubble: Top news story of 2005?

For the past month, two Boston Globe real estate articles, one on falling prices and the other on rising foreclosures, have topped their list of "Most Popular Stories" (click on image for larger view).  Now, guess what their cross-town rival, the Boston Herald, has listed as #1 on their "top business and economics highlights of 2005"?

1. Pop goes the bubble — The state’s housing bubble finally sprang a leak this year, with a noticeable slowdown in sales, a falling off in prices and long waits to sell homes. Partly brought about by rising interest rates, the slowdown was evident by May, when housing sales fell by 11 percent over the prior year. The market hasn’t shown much improvement since.

The rest of the Herald's list includes factors that have contributed to the end of the real estate bubble and will continue to pull down housing prices in coming months and years: slow job growth in the state, rising gas and energy prices, and loss of major Massachusetts employers through mergers, acquisitions, and relocations. 

TEST MARKETING AN IDEA

The Real Estate Cafe has been tracking factors underlying the housing market in Boston since 2000, the peak of the dot.com boom, and we are eager to share our knowledge and get your insight, too.  Would you be interested in participating in a monthly or bi-weekly real estate round table, or since we'll probably host the conversation in a restaurant or bar, an occasional "Bubble Hour" or "Boston Realty Party" in 2006? If so, we'd like to hear from you particularly if you want to be a featured guest. 

We know that our clients tend to be part of the "do-it-yourself" movement, but this is one of the ideas we're exploring to increase peer-to-peer interaction in 2006.  Please let us know if you have ideas about how we can help you learn from each other to make more informed decisions, avoid making mistakes, and ultimately, save money.

Spring forward, fall back: Resetting the Foreclosure Clock

There was a time when CENTURY 21, the world's largest real estate organization with 110,000 brokers and agents in more than 25 countries, used the slogan, "We sell a home every minute of every day."  On the day after Halloween, transactions per minute have come back into the real estate vocabulary with a frightening, downward spin that could make recent and potential homebuyers run for cover, at least in the UK.  There, an article entitled, Increase in repossessions show housing bubble is close to bursting, published this stunning statement and the statistics on the link below:  "in England and Wales a repossession order is made every seven minutes and an action is entered into every four minutes."

Think It could never happen here?  Don't be so sure... check out the nearly 1.5 million foreclosures, foreclosures, bankruptcies, and tax liens already recorded nationwide on Foreclosure.com and speculation earlier this summer about the prospect of "repossession riots" in the future.  (The Real Estate Cafe's predecessor, the Massachusetts Homebuyers Club helped the federal government sell foreclosed properties in 50 major cities across 25 states in the last real estate recession from 1991 to 1995.)

Regionally an action is entered into every:

• London: 24 minutes
• South East: 30 minutes
• West Midlands: 43 minutes
• North West: 42 minutes
• Eastern Region: 45 minutes
• Yorks and Humber: 47 minutes
• East Midlands: 58 minutes
• South West: 64 minutes
• Wales: 81 minutes
• North East: 87 minutes
• Merseyside: 153 minutes

Regionally a repossession order is made every:

• London: 37 minutes
• South East: 45 minutes
• West Midlands: 61 minutes
• North West: 66 minutes
• Eastern Region: 68 minutes
• Yorks and Humber: 80 minutes
• East Midlands: 88 minutes
• South West: 90 minutes
• Wales: 122 minutes
• North East: 140 minutes
• Merseyside: 207 minutes

Commenting on the figures Vince Cable MP, Liberal Democrat Shadow Chancellor said:

"These figures are deeply worrying. While they are at low levels compared to the early 1990's there are clearly big problems ahead."

"Banks and building societies need to ensure that when individuals take out mortgages they are fully aware of the risks that are involved and of the relevant insurance products."

"At long last the Chancellor has now accepted there is a bubble in the housing market. Now he needs to recognise that for many homeowners it is sadly bursting and that he needs to take action."

Bad moon rising: Should home buyers & sellers start "Freaking out?"

First the serious news:  The appearance of rogue economists Steven Levin and Stephen Dubner, coauthors of Freakonomics, on NBC's Today Show has sparked a controversy that has the National Association of Realtors firing back and offering their chief economist or association president to rebut allegations that Realtors work harder to get the highest price for their own properties, than they do for clients who they too often sell short.

Now the weird news, or should we say "Freaky?"  NASA's web site  says...

This week's full moon hangs lower in the sky than any full moon since June 1987, so the Moon Illusion is going to be extra strong."

Makes me wonder if there is a connection between the Moon Illusion and housing prices.  The last housing cycle peaked around 1987, marking a turning point which saw prices slide through the early 1990's in many housing markets across the US.

So if home buyers and sellers are looking for a sign that the housing market has peaked, and the Boston Globe's recent series of headlines on foreclosures haven't already freaked them out, what do you bet that history will recognize this year's summer solstice as a celestial tipping point in hindsight?

Many people have heard about money-making Ponzi Schemes, invented here in Boston in 1919, but who would guess that was six years AFTER something called the Ponzo Illusion -- the phenomena behind the Moon Illusion -- was discovered?  Both make things appear larger than they really are; in one case, the moon and in the other case, return on investments -- like real estate in today's market!  Who would guess that real estate cycles are tied to cosmic events like decade-long lunar cycles?  ;-)  Freaky!

From froth to foreclosures: You ain't seen nothing yet!

Less than a month after Fed Chairman Alan Greenspan first used the word "froth" to describe overheated housing markets, a new "f" word is stealing the headlines in Boston Globe:  Foreclosures!

During the last two days, the Boston Globe has run seven stories -- count em, SEVEN stories! -- on foreclosures in the main and regional versions of the paper.  The lead story on Saturday, June 18, 2005 -- Foreclosure filings jump in Mass. as home values soar -- was the fourth Boston Globe front page story on real estate in the past six weeks.

A second Associated Press story appeared on Saturday, State foreclosure filings jump 28 percent in early part of year, followed by regional versions in Sunday's paper (see list of links below).  According to the Globe:

Secretary of State William Galvin listed numerous factors in the sharp increase in foreclosures, including high housing prices, lenders' willingness to give loans without a major downpayment and people's desires to own something priced beyond their means.

"When you tie all these factors together ... you have a recipe for disaster," said Galvin, whose office oversees the registries of deeds in most of the state's 14 counties.

Headlines in regional editions of the Boston Sunday Globe on June 19, 2005 mirrored Galvin's comment:

In hot market, some feel chill of foreclosure
Loss of dream house is a nightmare for Peabody couple

The real estate boom's flip side: foreclosures
Filings skyrocket as overextended homeowners fall prey to personal debt, predatory lenders

Housing foreclosures expected to rise
Ease of borrowing money, uncertain economy leave some homeowners struggling to keep up

Economic woes hit home, as foreclosure rate soars

In hot housing market, the chill of foreclosure
Number of people losing their homes is on the rise

Many of the statistics used in the lead story and regional editions were from ForeclosuresMass.  The group will be hosting a number of educational events for foreclosure investors in coming weeks, including a FREE one-hour tele-seminar on July 13, followed by a one-day foreclosure seminar on July 23, and a two-day Foreclosure Summit in 2006.

During the last real estate down turn, The Real Estate Cafe's founder, Bill Wendel, helped eight government agencies auction foreclosed properties to low and moderate income households in 50 major cities across 25 states between 1990 and 1995.  Foreclosures during that period increased after the housing market changed.  In contrast, the Globes headlines repeatedly noted that the foreclosure rate is soaring now at the same time that the housing market is still overheated. 

When the market really cools, things will get worse, potentially much worse.  A recent New York Times article called the magnitude of interest-only and adjustable rate mortgages "The Trillion-Dollar Bet" because "$1 trillion of the nation's mortgage debt - or about 12 percent of it - [will] switch to adjustable payments in 2007."  Will foreclosures spike then?

An upcoming article in the July / August issue of The Atlantic Monthly, entitled "Countdown to a Meltdown, speculates that the situation could become so bad that "repossession riots" will occur in some areas.  Do you think that fictitious forecast is irresponsible fear mongering, or foreshadowing a falling market that will make current home buyers look foolish; or worse, candidates for foreclosure in the future?