Counter Intelligence: The Real Estate Cafe Weblog

Wait 2.0: Negative cycle creating marginal or mega-savings for patient homebuyers?

At the end of 2006, one of our blog posts linked to this cautionary (albeit biased) advice from the outgoing president of the Massachusetts Association of Realtors:

“With home prices leveling, interest rates remaining low, inventory still plentiful and more sellers accepting market-based pricing, Bay State homebuyers have a special window of opportunity right now,” Mr. Wluka said. “We just don’t know how long the window will stay open, with factors remaining so favorable. For anyone trying to time the market, the waiting game may be a big mistake.”

Eight months later, a survey of economists and the interview below on Marketplace.org, suggest that waiting could create more savings opportunities for homebuyers from what economists call a "negative cycle."  How much have you saved by delaying your home buying plans over the past year or two, and how much more do you think you can save my waiting longer?  How long will you wait, or will you be bargain hunting this Fall and winter as seasonal markdowns accelerate savings opportunities?

Marketplace.org:  "Ride Dow roller coaster, or sit it out? (8/30/07)
Links and excerpts selected by The Real Estate Cafe, audio online above (but no transcript yet):

Marketplace host:  You get the feeling that investors can't seem to make up their minds?  ...Once emotions loosen the markets, where it all ends, can be anyone's guess.  ...That has a lot of us in some kind of limbo these days.

Steve Tripoli, Marketplace:  Even well-healed potential buyers are thinking twice these days.  Lois Vitt has written a book about real estate that focuses on buyer and seller psychology.  She says "caution" is what happens when markets turn sharply south.

Dr. Lois Vitt, author:  Fear is contagious and that's what's going on right now.  People are afraid.  And so they worry that they might get in trouble if they go ahead with their plans and so people are holding back.

Steve Tripoli, Marketplace:  Nationwide chatter about a housing bubble, and further price drops isn't helping; even if it is accurate says Wellesley College housing expert Karl Case.

Karl Case, housing economist:   I've got a t-shirt that says, "Mr. Housing Bubble:  I pop and you are done."  There's just a lot of press, a lot of news about the mortgage market, about auctions, houses, about foreclosures.  If you are in the market about to make a big decision about buying a large asset, that is going to scare you.

Steve Tripoli, Marketplace:  It's not only that a house is a big asset, says Case, but it's one most buyers will hold for a long time.

Karl Case, housing economist:   And they borrowed the money to do it.  So they naturally have expectations about whether it's likely for it to go up or down, and it is clear that the demand is sensitive to those expectations.

Steve Tripoli, Marketplace:  The problem with this negative market psychology is that it can be self-fulfilling.  Buyers hold back, prices drop; so more mortgages exceed the home's value, and prices drop more.  Then buyers pull back even more.  I asked re Karl Case and Lois Vit, "Are we are in danger of that kind of negative feedback cycle right now?"

Karl Case, housing economist:   Absolutely.

Dr .Lois Vitt, author:  Absolutely.

Steve Tripoli, Marketplace:  And all of the sophisticated computer models, and hedge fund managers in the world can't predict where that kind of negative thinking will take us.  So fasten your seat belts.  I'm Steve Tripoli for Marketplace.

Listen to NPR's "All Things Considered" this evening for more insight into the negative cycle spiraling downward in the housing market.  Here's a key pull quote:

Economists expect total declines of about 10 percent throughout many parts of the country — and up to 25 percent in some of the formerly hottest markets.

Dismal scientists fear dismal housing recovery

For some time, The Real Estate Cafe has been saying that client house hunts that once took two to three months in Greater Boston, are now taking two to three years.  That was before this stunning headline,  "Economists see credit problems as bigger threat than terrorism," revealed these findings:

Asked to look five years into the future, 42 percent [of business economists] expected U.S. home prices to remain flat, 41 percent said prices should rise, and 16 percent predicted prices will fall. 

Only one in five of those surveyed predicted a "meaningful" recovery in U.S. housing markets before the second half of 2008. About 38 percent expected a recovery in the second half of 2008, while 42 percent said housing markets won't turn around until 2009 or later.

If you are a home buyer, will the dismal survey findings above cause you to extend your house hunt by months or years?  Or will you be bargain hunting this Fall and winter, as seasonal price reductions create attractive home buying opportunities?

Join the discussion on our social networking site:  Wait 2.0?  Will dismal housing forecast extend househunts another 2 years?

Summer slump of 2007: For every 2 sales, 3 listings failing in MA

Two years ago, The Real Estate Cafe graphed summer sales versus expired listings in Massachusetts across a ten year period:  1996 to 2005.   It's too early to update the graph but the current tally of 8,628 expired listings during the past seven weeks exceeds the 7,457 peak in 2005, the highest of any ten week summer period graphed above (click on image for larger view).  In addition to expired listings this year, there have been 4,455 canceled listings and another 2,455 withdrawn listings.  That's a grand total of 15,538 unsuccessful listings, compared to 10,136 sales during the same period.

So, for every two sales over the past seven weeks (6/30/07-8/20/07), three listings failed.  That's about 2,000 expired, canceled, or withdrawn listings per week.  Unless sellers hold their properties off the market, the unfolding credit crunch could create a higher rate of failure in the final weeks of 2007.

What does that mean for potential home buyers?  Two money-savings opportunities:

Expired & canceled listings:  If you have had no previous contact with the former listing agent or attended any of their open houses, buyers may save money -- approximately 5% of the asking sales price -- by contacting owners of expired and canceled listings directly.  If you're interested in that do-it-yourself opportunity, The Real Estate Cafe would be glad to provide assistance "a la carte" on a fee-for-service or flat fee basis. 

Proactive house hunting:  There are thousands of homeowners getting ready to list their homes this Fall.  The Real Estate Cafe would be glad to tell you how some of our recent home buyers have saved money by identifying homes BEFORE they are listed with a traditional listing agency.

Mapping credit crunch casualties in Boston & beyond

Inspired by today's Boston Globe's cover story entitled, "Mortgage crisis may hurt sales this fall" and it's ominous subtitle -- "More buyers likely to be refused loans" -- The Real Estate Cafe is eager to begin adding credit crunch casualties to our award-winning real estate bubble map.  Our first location has had three offers fall through over the past five months, including one last week.  If we could mobilize an army of would-be homebuyers turned investigative reporters, we'd map several categories of credit crunch casualties:

• Properties "back on market" (both MLS listings and "for sale by owner")
• Buyers whose loan applications are refused
• Prices that are renegotiated after properties fail to appraise
• Canceled transactions because would-be buyers cannot sell their existing home

Will it be possible to identify and document enough case studies to create a credible "credit crunch map" or at least a subset of our existing real estate bubble map?  We're not sure, but the financial reward of such a collective effort could be substantial:  depending on one's price range, patient home buyers in Boston could save $10,000 to $25,000 per month over the next four to six months.  In the meantime, we're willing to compensate clients who contribute content, see our Tipping Policy.

We agree:  "an amazing scene [is] developing;" and we're eager to see if interactive mapping can help translate credit crunch casualties into clients savings.  As the Globe wrote, "sellers who fear financing problems may jeopardize a deal are reducing their prices," and "Buyers 'are aware they have more choices, and down the line, their choices may increase exponentially...' "

Related post:  Summer slump of 2007:  For every 2 sales, 3 listings failing in MA

Comments welcome below and / or in The Real Estate Cafe's Idea Bar.

Picnic-style Bubble Hour: "We're not in Kansas any more"

What a week on Wall Street!  How soon will housing prices in Boston respond to the credit crunch?  That's the subject we explored in our blog post last night that's already been visited by more than 400 readers.  Many of them have come from a link on local favorite, BostonBubble.com, so we're inviting readers, Real Estate Cafe clients, and others to join us TONIGHT, Friday, August 17, 2007 for a picnic-style "Bubble Hour" at the Hatch Shell on Boston's Esplanade, just before the outdoor showing of the classic movie, "The Wizard of Oz."

As always, Friday Flicks are FREE and start at sunset (approx. 7:30pm, we'll start gathering around 6:00pm so we can share insights into the falling housing market).  If it is not obvious where we are, please call us.

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If you're a real estate professional, or just obsessed with money-saving real estate tools and toys, as we are at The Real Estate Cafe, join us for a real estate round table beforehand across the Charles River at MIT's Muddy Charles Pub (TENTATIVELY, approx. 4-6pm).  Bring your laptop so we can surf some of the hot new sites featured at Real Estate Connect in San Francisco.  We're also eager to begin brainstorming about the proposed real estate unconference this Fall in Boston.

If it is easier for fellow real estate professionals to meet earlier in the day, or in another venue (or to postpone the technology debriefing until another date, please use this wiki-style event planner to "Talk about it."

Need your prediction: How far will rising cost of jumbo loans drive prices down?

If you are a home buyer or seller reluctant to drop your asking price, MarketPlace.org's segment tonight on jumbo loans is required listening:  "Jumbo loans feel subprime weight."

During the past several weeks, The Real Estate Cafe has helped buyer clients in Greater Boston prepare offers on luxury condos and a single family homes in the jumbo price range.  Thus far, sellers with broker listed properties have been reluctant to drop their prices, while FSBOs are ready to deal.  Maybe it's too early for the trend documented below to show up in broker "comps" (ie.  recent sales):

"...more than 10 percent of his deals have fallen through in the last few weeks — up from less than 1 percent. He says many people just can't get the loans they need. The same thing is happening in New York, Boston and San Jose."

Will the rising cost of jumbo loans drive housing prices down in Boston and beyond, or as one economist fears, have a broader "jumbo impact on the U.S. economy."  What's your prediction?  You can follow what real estate agents and others are saying on HomeThinking, what the public is predicting on My-Currency, and what the pros are modeling on Wall Street.  You can also leave a comment below, or add the location of homes selling below their assessed value value on our Boston Bubble map or RealEstateBubbleMap wiki. 

Before you make your prediction, take The Real Estate Cafe's analysis of seasonality in the past into consideration:

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.

Cross-posted on The Real Estate Cafe's new, experimental social networking site.

Real Estate Rift or Rebate Envy?

Wish the Boston Globe had mentioned The Real Estate Cafe's industry leading menu of fees & rebates in their recent article, Rebates:  A Real Estate Rift. The Wall Street Journal featured our 100% commission rebate more than three years ago in an article entitled, "Cutting the Commission."  Our current menu of fees & rebates is online and we'd be glad to discuss side-by-side comparisons of competing rebates and fee-for-service business models privately over coffee, real estate round tables, or internet chats (see calendar wiki for coming events).

If time permits, we'll do a more in-depth critique of the Globe's article and commission reform; and MAYBE invite clients and readers to brainstorm about our newest domain, RebateEnvy.com, in the "Idea Bar" on The Real Estate Cafe's wiki or private chat on our intranet.  In the meantime, here's a map of client savings -- over $1 million during one twelve month period, 2006-2007!  (Makes some of the savings and rebates in the Globe article look rather modest, doesn't it?  Feeling envious?  Let's talk about it over coffee.)

Cross-posted in the discussion forum section of our new, experimental social networking site.