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.)

Consumers track the housing bubble: From Wikipedia to local "Bubble Hours"

Following up on the recent post about The Real Estate Cafe's yet to be released "Menu of Wikis," here are two powerful examples of wiki collaboration documenting the real estate bubble in the US and worldwide:

http://en.wikipedia.org/wiki/US_property_bubble

http://en.wikipedia.org/wiki/Real_estate_bubble

Don’t know who contributed to either wiki or how our bubble blog was included in the source list, but The Real Estate Cafe is most grateful.  Local residents know that making sense of contradictory statements about the housing market in Massachusetts is an ongoing challenge, which is why a number of leading bloggers in Boston are collaborating on an ongoing series of "Bubble Hours" (see posts for January & February 2006).  If you'd like to participate in the next Bubble Hour, online or in person, or would like to receive a transcript of past chats, please email us at [email protected].  As always, your comments are welcome below or on our reader line at 617-876-2117.

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.)

Boston housing market 2006: "Hard landing" or "return to normalcy"?

Three weeks after economist Nicholas Perna told the Boston Globe that "both early data and the anecdotes -- are pointing more toward a hard rather than a soft landing" for the [Massachusetts] housing market, Perna repeated that assessment in the Boston Herald following news that single-family home sales fell 9.2 percent in November.  Need to confirm, but isn't that the four month this year of near double-digit decreases compared to 2004?

"It sounds more and more like the housing adjustment is a harder landing in Massachusetts than elsewhere in the country,' said economist Nicholas Perna. 'I don’t think we are seeing anything like that in the country as a whole. My guess is that Massachusetts is among the most seriously affected."

Some real estate professionals dismissed the significance of falling sales, calling them a "return to normalcy."   What's your take?  Your comments are welcome below, or on our readers' "record your own podcast" line:  617-876-2117.

Quick overview of November housing statistics from the Boston Globe:
November home sales off sharply

"The median condo price slid 2.3 percent to $265,000 in November from October. That's about the same as it was in November 2004.

Sales of single-family homes fell 9.2 percent in November compared to a year ago, the second consecutive steep monthly decline.

The Massachusetts Association of Realtors, in its November report on the state's housing market, said yesterday that 3,713 single-family home sales closed, down from 4,089 in November last year.

Despite the decline, the median price ROSE (emphasis added) modestly, to $354,000 last month. That's 1.7 percent higher than in October and 2.3 percent above November 2004."

Single family housing prices may have risen slightly last month, but this graph of real estate cycles over the past 30 years in Boston, created by Douglas McCarroll, one of The Real Estate Cafe's fee-for-service buyer agent / real estate consultants, gives some context for predictions that the Boston housing market is merely returning to "normalcy."

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. 

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?

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).

Homebuying plans plunge, are housing prices next?

Stunning new finding today.  According to monthly University of Michigan Survey of Consumers, consumer confidence dropped to it's lowest point in 12 years, pulling homebuying plans to their lowest point in a decade.  According to Inman News, "The decline in home-buying plans was due to an increasingly negative reaction to high home prices, as consumers expressed in September the least favorable assessment in nearly a quarter century." 

How did the housing market go from record high real estate searches on Boston.com in March of 2005 -- seven million page views generated by one million homes for sale searches -- to no-shows at suburban open houses, and now this news? 

Have inflated housing prices reached a historic turning point that will see prices decline for years or is this just the annual October scare made worse by gas prices doubling in the aftershock of Katrina? Consumer confidence slipped to a nine year low on Halloween 2002 just before the housing market entered into the second wave of the current price surge.  So, no big surprise that the relentless press coverage of the real estate bubble has pushed homebuying plans down again this time of year, right?

If, on the other hand, you believe that prices in 2003 to 2005 were bloated by opportunistic buying driven by fears of rising interest rates, investors, and interest-only loans, you may be patting yourself on the back for not buying this Spring at the top of the market and wondering how far prices will fall as interest rates rise.

Should you sit out the Fall market, or take advantage of the "let's make a deal" price slashing that begins this time of year while interest rates are still near forty year lows?  We'd like to hear your opinion.  Click on "Comments" below or call 617-876-2117 to record a one to three minute sound bite that we may use in a future podcast.

Single family sales drop 10% in MA

Real estate headlines seem to be everywhere these days, from today's lead story in USA Today, -- the second in two weeks, to Monday's "Condo a Go-Go" story and slide show in the New York Times, to Saturday's story in the Washington Post about a Playboy centerfold who is giving up her modeling to become a real estate investor. 

Despite those sexy news angles and industry spin that "everything is coming up roses," the most revealing finding for home buyers and sellers in Massachusetts is today's Boston Globe Business headline: 

State home sales sag 10% in April. 

According to the Massachusetts Association of Realtors, the number of single-family homes sold in April was down 10.4 percent from 2004, marking the first double-digit decline since April 2003.

After years of warnings, is Boston in for a Real Estate Reality Check?  That was the title of today's talk show on The Connection, a nationally syndicated radio program, which will be rebroadcast in Boston at 9pm this evening on 90.9FM and archived online.

Wellesley economics professor Karl Case, cofounder of CSWv.com and partner of Robert Shiller, told the Globe, ''I think we are beginning to see the beginning of a soft period."  His comments could foreshadow the slide in housing prices, forecast last week by the New England Economic Partnership, that could last through 2007.

If you are a buyer or seller in Massachusetts has your thinking begun to change about whether this is a good time to buy or sell, and what are you doing to protect yourself?  Want to talk about it online, or at a monthly "Bubble Hour" where you can share insights and questions with other consumers?