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October 08, 2005
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 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, another 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).
Bill Wendel | 08:24 PM in Market trends, Real Estate Bubble | Permalink
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It would take a true moron, indeed, to not realize that Southern California real estate is WAAAAAAAY overprices.
End of story.
Posted by: Rintoul | Oct 10, 2005 3:10:32 PM
It's all downhill from here! If you bought recently, you are doomed....If you are thinking about buying, even for 10k or 20k below asking prices, you are a fool! We have the perfect storm for a real estate crash and nothing can stop it! Interest rates are heading north (inflation is going up), jobs are getting scarse (salaries not growing), debt is at an all time high while savings is at an all time low. There are too many foolish mortgage types (interest only, 100% financing), too many unworthy borrowers (lenders too lenient), too many for sale signs everywhere and prices are just way too high! There is too much speculation, there are too many realtor wannabes who are going to lose their jobs when they can no longer sell a house. All jobs tied to real estate will be gone....We are going to have a doosey of a resession which will pop the credit bubble, which will lead to an all time high of foreclosures, which will lead to lower housing prices, which will lead to many people walking away from their houses which will lead to yet more price reductions....but really, this is only bad news for people who recently (within the last 4 or 5 years) decided they couldn't wait to be homeowners,... for the rest of us that were smart enough to rent, our boat will finally be coming in!
Posted by: Allah | Oct 10, 2005 5:21:33 PM
I don't know where the housing prices are going. However, up or down, this inflation in housing prices is a tragedy. Five years ago housing was actually a bit more affordable than it had been in the past (not a lot more, but a bit more). We've allowed the greedy and stupid to erase that win for the middle class. Perhaps it could not be helped.
Posted by: btvdan | Feb 24, 2006 10:36:25 AM
btvdan,
There is mounting evidence that a price correction is underway in the Boston / Massachusetts housing market . True, no one can predict accurately what will happen to sales prices, but there seems to be an emerging concensus that they will be flat or fall for at least two years. Our survey of potential homebuyers reveals that there is a wide gap between their expectations about how far prices will fall and what the mainstream press is reporting.
I agree with your statement about the social cost of over inflated housing prices. The double tragedy is that some who thought they were making wise homebuying decisions in recent years could actually become casualities of the housing bubble they, knowingly or unknowingly, helped create. The Real Estate Cafe's goal is to foster an intelligent exchange of perspectives on market trends so consumers, particularly first time hombuyers, can make informed decisions fully aware of potential risks.
Your contributions on that subject on welcome online or in person at the series of monthly (or biweekly) meetings we are cohosting with other Boston bubble bloggers to monitor the housing market trends in Greater Boston and across Massachusetts. See posts elsewhere on this blog for more detail.
Posted by: RealEstateCafe | Feb 24, 2006 10:56:55 AM
15%? The only two houses that have sold near me (Newton) in the past year or so went for almost 25% below asking! Both went on the market at $850, sold for roughly $650. Incredible!
Posted by: Manny Goldstein | Feb 28, 2006 7:21:33 PM
Manny thanks for those stats. We have a buyer who has been very measured in the arguments he's presented to a seller in Newton who is reluctant to lower his price. Now we can strengthen the case for the reasonableness of our offer by citing yet another sale way below the original asking price.
Do you want to join our chat about the January housing stats just released by MAR? Our next "Bubble Hour" begins at 8pm. See most recent post on our blog for details about how to join us.
Posted by: RealEstateCafe | Feb 28, 2006 7:39:48 PM
Hey guys, nice posts. We bubble believers all live and dream of the crash to justify our rantings over the absuridty of this run up. I must admit, I sold 18 months ago, and have not regretted it. However, as these increases drag on and on, all I can wonder is, "Where is the money coming from?" Is this some mega ponzi scheme, where people keep rolling their gains into larger purchases. No one can explain where the money came from. In reality, I have long believed this is simply an interest rate driven run up. However, interest rates have finally begun to come back to normal levels, and the buying continues. When, I ask you, is this going to stop? Simply math says were done, but that does not necessicarily yield steep price drops. statistics do not show a decline yet in S.California and in reality, I must admit that I just dont see it without a catalyst. (ie: significant future increase in interest rates, or a major recession, neither of which is on the horizon.) Best of luck believers, but were still in for a wait for any significant price reductions.
Posted by: Guy | Mar 25, 2006 8:42:59 PM
Guy,
Thanks for underscoring the fact that falling asking prices don't necessarily translate into significant price reductions. At least not yet. But if you move beyond statewide medians, and dig into what's happening in some of the most expensive suburban communities in Boston, some of the findings are surprising. More research needs to be done before you'll see it in the mainstream media, but will continue to look for emerging trends and report here.
One of our upcoming posts will deal with
interest rates which are still closer to near historic lows than historic norms. If that kind of discussion interests you, please join one of our upcoming Bubble Hours. We're fortunate to have some very intelligent participants and I can send a password to you if you'd like to see past transcripts. Alternately, we'll post links to PDF's online.
Posted by: RealEstateCafe | Mar 26, 2006 12:06:44 AM
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