Real Estate Bubble Debate

Industry's seller bias understates risk to homebuyers

Kudos to the Boston Herald for asking "Has the Mass. housing bubble burst?" on their front page this morning.

If homebuyers focus on median sales prices, they might reach the same conclusion the Massachusetts Massachusetts Association of Realtors (MAR) did three months ago when they told the public that a "New study finds no evidence of a “housing bubble” in metro Boston."

Afterall, according to MAR's report on existing home sales during July 2006, median single-family home prices decreased just 3.5 percent from the previous year, despite declining sales during 17 of the past 18 months.  To their credit, MAR also disclosed:  (1) that is the largest annual price decline since March 1993; (2) median sales prices have declined for six consecutive months, and (3) that is the longest slump since housing prices fell 13 straight months from March 1992 to March 1993.

What raises questions is that The Warren Group reported that median sales prices for single-family homes fell by 6.1% or 74% more than MAR's figure.  Maybe that's because MAR based their assessment on a median single-family price of $361,750; in contrast, The Warren Group's median (which includes sales outside the MLS) was $339,000 or $22,750 (6%) less.  Far more alarming is that The Warren Group figure is $1,000 less than their median sales price two years ago, $340,000.

So, despite the lowest prices in two years and the sharpest drop in sales since 1995, what's distressing -- as a buyer's agent -- is that MAR's talking points continue to understate the risk for homebuyers:

"Today’s lower prices reflect softening buyer demand and rising in inventory levels, which have started to trigger modest price adjustments on the part of sellers. With demand still historical strong though, major price corrections are unlikely."

If homebuyers look beyond median prices to individual transactions, they'll see that major price corrections are already underway.  The Real Estate Cafe has already mapped nearly 400 sales below assessed value across 27 of the most expensive cities & towns in Greater Boston. In coming days, we'll post another 200 sales to our real estate bubble map including 50 in Greater Boston plus another 150 from Southeastern Massachusetts, primarily on Cape Cod courtesy of RealtyInsite.com.  If you see evidence that prices are falling, please post them to the real estate bubble map or create your own.  If you're one of our clients, we'll reward you for each property (see "Tipping Policy" for more detail.)

CAUTION: You are entering "The Bubble Spin Zone"

"You're traveling to another dimension, a dimension not only of sight and sound... but of mind. A journey into a wondrous land, whose boundaries are only that of the imagination... you're entering... the Bubble Spin Zone."

Reading some assessments of the current Massachusetts housing market, one wonders if industry spokespersons are taking their cues from Rod Serling classic, "The Twilight Zone."  Arguing "that prices are not declining sharply in response to falling sales," one recently told the Boston Globe that "I'm seeing some concessions from sellers, but not a whole lot." Last August when the same spokesperson was asked by WBZ-AM radio talk show host Paul Sullivan if buyers were in danger of buying at the height of the market, he said no.

So, to help inform homebuyers and protect them from overpaying in overvalued housing markets, The Real Estate Cafe has developed an interactive map to involve homebuyers (and fellow buyer agents) in the process of documenting falling housing prices, in Massachusetts and beyond.  Beyond price concessions, we are particularly interested in mapping sales below assessed value.  Would you believe that some buyer agents first began chatting privately about homes selling below appraised value this time last year?

If you are actively looking for a home, please visit our real estate bubble map before making an offer.  Working with site users, we've already mapped nearly 300 properties sold recently below their assessed value in 27 of the most expensive cities and towns in Greater Boston. We assume our readers know more than we do, so we've made it easy for you to post comments, add new properties, or start your own local bubble map.  Some consumers have begun documenting sales below assessed value in highly desirable towns like Cambridge, Brookline, Newton, and suburban communities near Route 495.

Shortly, we'll add another 150 sales below assessed value which occurred during the past six weeks.  Some of the properties already mapped have sold for at least $100,000 off, but don't let that cause you to rush into an offer.  The largest price reductions could be between Thanksgiving and New Year's Day; when historically, one in five properties sells for at least 10 percent off.  This year, we'll track how many sell for 10 percent below their assessed value, but we'll need your help to do it.

If you're one of our paying clients in Massachusetts, we'll reward you for each property you add to the one of our regional bubble maps.  See our Tipping Policy for more detail. (Get it?  Real Estate Cafe, Tipping policy?)

Housing price seasonality in Massachusetts

Some pictures are worth a thousand words, others are worth tens of thousands in savings (or more than $100,000 in some communities in Greater Boston.)

Click on the graph above for a closer look at seasonal variation in median sales prices for single family homes across Massachusetts before making "The Big Move" this Spring, or you could be making a "Big Mistake."

Note, this graph helps explain why median sales prices in Massachusetts are down 9.5 percent from their peak last summer.  Inflation-adjusted prices are down even further.  Will median housing prices rebound this summer?  That depends, in part, on offers made by overeager buyers in coming weeks.  Peak sales prices in June reflect offers typically made in April and May.  What's our advice?  Make sure you're making the "Right Move," and don't mistake a marketing push for a market opportunity.  Asking prices will soften after the 4th of July, when it's likely we'll see a record number of listings get the "Big reMove," and savings opportunities increase for the balance of the year.

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]

Homebuyer survey: Graph prices thru 2010

During 2005, The Real Estate Cafe tried to keep its clients as well as the general public informed about the real estate bubble through our blog. Now we'd like to invite our blog readers in Greater Boston to give us YOUR opinion on the housing market and homebuying plans for 2006.

The survey takes just a few minutes and we need *** FIVE *** more respondents to reach our goal of 100. Your feedback will help us provide better services to consumers.

Privacy Policy: Survey responses will be tablulated as a group without attribution to individual respondents. Your identify is so confidential we don't even ask for your name or your email address, so there's no way we can share or, God forbid, sell them to anyone who might send you junk mail or spam.

Crystal ball & graph to predict housing prices in 2006

Wish you had a crystal ball to see where housing prices are headed in 2006?  Then watch our video and check out is this graph of past real estate cycles in Boston before making your own prediction.  Merry Christmas from The Real Estate Cafe, particularly to those bargain hunters who know the holidays can be an excellent time to buy.  As our gift to you, we've introduced a new rebate option, at half our normally hourly rate, to encourage you to try our nationally recognized fee-for-service business model.

Pop-up quiz: What will happen to housing prices in 2006?

Predictions about what will happen to housing prices in 2006 are beginning to pop-up on line, so we've created our own "pop quiz" to get your opinion, too.  Quick:  how much will housing prices will rise or fall in Greater Boston in 2006?  OK, now the pop question.  Click on the tiny image above and a full-sized graph of housing price increases and decreases by quarter over the past 30 years in Boston/Quincy will pop-up.

Do those real estate cycles change your predictions about what will happen in 2006? 

If not, take a second look.  Compare the price spikes over the past five years to the more modest increase of prices which peaked in the mid-1980s.  If prices increased twice as high in the first half of this decade will they decrease twice as far during the second half of this decade?

Your comments, particularly regarding any factors which may mitigate or accelerate the coming down cycle, are welcome.  Most importantly, please let us know if your predictions changed when the graph popped up. Your comments are welcome here, or by calling our reader line 617-876-2117 to record a sound bite for potential use in a future podcast.

Sharp price reductions point to hard landing for Boston Housing Market

NEWS FLASH:  Watch for more analysis and graphs of data behind the headline story in upcoming blog posts.  Should we host a Boston Realty Party -- online or in person?  -- to celebrate the end of the real estate bubble and the beginning of the first buyers' market in more than a decade in Boston?

Sellers chop asking prices as housing market slows
Cuts of up to 20% are now common as analysts see signs of a 'hard landing'
By Kimberly Blanton, Boston Globe Staff  |  December 9, 2005

''The evidence -- both early data and the anecdotes -- are pointing more toward a hard rather than a soft landing" in the housing market, said Nicholas Perna, an economic consultant in Ridgefield, Conn. ''Prices could come down. Could it be 10 to 15 percent? There's no way of knowing, but what we're getting is more clues that you've got a decline in prices underway.

Some of research conducted by The Real Estate Cafe was featured prominently in the article, although the contribution made via an interview with one of our buyers was less obvious:

Moderately priced homes are feeling the brunt of the price squeeze, according to an analysis of MLS listing data by Cambridge broker Bill Wendel.

Statewide, 38,418 houses had priced reductions between Jan. 1 and Nov. 24, or 22 percent more than the number of reductions during the same period in 2004. But the number of price reductions on homes between $500,000 and $1 million increased by 36 percent. One price segment that ''jumps off the page as soft," said Wendel, is the $500,000 to $600,000 price range, the fourth most active segment of the single-family housing market. It had 1,258 more markdowns, up 40 percent from last year.

The Boston Globe has aggregated some of their recent stories on the changing market into this Special Section online.  Now you can see why The Real Estate Cafe wants to throw a Boston Realty Party, on December 16, the 232 anniversary of the Boston Tea Party, for homebuyers to celebrate the end of the real estate bubble and the beginning of the new buyer's market!  Let us know if you'd be interested in participating online or in person in the Boston area.

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.