Counter Intelligence: The Real Estate Cafe Weblog

Part I: Housing slump hits Cambridge: 1 in 3 single family homes selling below assessed value

Part I:  On Sunday, July 13, 2008, the Boston Globe published a lead story in City Weekly entitled, In real estate sales, not all cities are equal.

A blog post earlier today by Redfin stated that "several single-family houses sold for less than the assessed value" in Cambridge, but the magnitude of the price correction underway is far more substantial.  As shown in the graph above, approximately one in three single family homes sold below their assessed value in Cambridge during the first six months of the past two years.  (The Real Estate Cafe's analysis was limited to the first two quarters of each year because we assume that a higher percentage of homes sell below assessed value during the second half of each year.)

The Real Estate Cafe first began tracking sales below assessed value during the first quarter of 2006; and by September 7, 2006, our research was featured in a Boston Globe story entitled, "Priced below assessment."  Contrary to Redfin's assertion that "a house would have to be ravaged by fire" to sell below assessed value, a map in the Globe story revealed that 37% of the single family homes sold in Brookline were below assessed value, compared to 22% of the single family homes sold in Cambridge at the time.  (Click for sample of the homes selling below assessed value in Brookline in the past.)

Two years ago today, our first user added their own examples of falling house prices to our interactive real estate bubble map.  Inman News also featured our map in a mini-series on Real Estate 2.0 innovations, and we need your financial support to attend their real estate technology conference next week to continue our 15 year tradition of helping real estate consumers save money.

Preview of Part II:  Homes selling below assessed value has clearly become more commonplace, but what was newsworthy about the Globe's recent story is the magnitude of how far below assessed value:  During the first six months of 2008, two homes in Cambridge sold for approximately $2 million below their original asking price; and more significantly, more than $1 million below their assessed value (based on our analysis of MLS data.  Watch for more details this week.

Will homebuyers create their own "Twitter posses"?

Thanks to PBS.org's Idea Lab for introducing me to the phrase, "Twitter posse."  Their vision of reporters asking questions via Twitter reminds me of Real Estate Cafe blog posts about "home buyers turned embedded real estate reporters."  Three years ago, February 11, 2005, we said:

"...our goal is to help seed a new generation of "embedded real estate reporters" or citizen journalists."

A more pointed question, "Will mobloggers pop the real estate bubble?" followed on April 17, 2005, four months before the housing market peaked in Massachusetts and a year before we invited bubble bloggers and citizen journalists to contribute to our Real Estate Bubble Map.

We've only begun to scratch the surface of potential uses for Twitter in real estate, so why limit brainstorming about Twitter Posses to reporters?  Just substitute the word "home buyer" for reporter in the original Idea Lab post and you'll see that "homebuyer posses," "househunting posses," or "neighborhood posses" could become commonplace:

A potential home buyer could enlist a dozen or two dozen passionate, driven home buyers to serve as a kind of Twitter posse. Whenever she was about to tackle a big story or difficult interview, the home buyer could begin a mobile dialogue with fellow home buyers.

What I like about the concept: It brings a much-needed air of transparency to the house hunting process.  It expands the home buyer's field of vision.

Combine that with interactive mapping, or add Twitter posts to our Real Estate Bubble Map, and consumers could create a powerful new way to share market insights by typing 140 character messages into their smart phones as they tour open houses, drive through new neighborhoods, etc.

Any home buyers or sellers in Boston or elsewhere already using Twitter?  Any real estate professionals, particularly buyer agents, already organizing "househunting posses"?  (Any developers want to work on the idea?)  Post examples below, or @realestatecafe on Twitter.  You can follow our latest Tweets on our blog, or http://twitter.com/realestatecafe

Misleading medians understate savings opportunities for homebuyers

Posted in response to blog post entitled "Boston Housing Prices" on Boston.com's new real estate blog, Boston Real Estate Now:

As some of your readers know, focusing on median sales prices can understate the magnitude of saving opportunities in the housing market.  Like the image above, a closer look at sales behind the housing bubble reveals some surprising findings!  If, for example, you focus on sales of single family homes in the 28 most expensive suburban communities in Greater Boston last month (Sept. 2007), these findings emerge from the MLS:

1.  Sales were down nearly one third from last year:  216 sales in 9/07 versus 300 sales in 9/06;

2.  The percent of homes selling below their assessed value, once unthinkable in Greater Boston, rose slightly from 37% in 9/06 to 40% in 9/07;

3.  Those who argue that prices are holding up in Greater Boston can point to these stats: 

3.1  Twelve listings sold for over  their original asking price or 1 in 20 listings;

3.2  Another 13 listings sold for their original asking price or 1 in 20 again;

4.  In contrast, those who argue that median statistics are misleading would point to these stats:

4.1  One in four listings, or 53 of 216 single family homes in the most expensive suburban communities, sold for at least $99,000 less than the original asking price -- a trend we mapped last year;

5.  Looking just at the 86 homes which sold below their assessed value, 1 in 3 sold for at least $99,000 off;

6.  Switching from dollars saved to percent saved last month:

6.  One in three listings sold for at least 10% less than their original asking price; and worse

7.  One in ten sold for at least 17% below than their original asking price!

So, if you are a buyer, don't be too quick to base your assessment of market value, and hence your offer, on median sales prices or market indexes which are showing modest declines.  Historically, one in five homes which go under agreement between Thanksgiving and New Years, sell for at least 10% below the original asking price.  As the statistics above reveal, price reductions are likely to be deeper and more wide spread this year.  We'll map them on our award-winning real estate bubble map. It's an open, interactive map so Real Estate Cafe clients can earn rebate bonuses by adding properties, too.

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.

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.

MIT Professor: Housing prices could decline another 20%

Savings of $100,000 or more on individual home purchases were relatively common across the top 25 most expensive housing markets in Greater Boston in 2006, and according to one MIT professor, savings are likely to continue in 2007.  Professor William C. Wheaton predicts housing prices could decline another 20 percent in Greater Boston and other markets over the next two to three years.  Does that mean that homebuyers in the most expensive communities will see even more price reductions in each of these categories in 2007?

PARTIAL MAP of homes selling for more than $100,000 below their original asking price: (see technical note below)

• Saved $100K to $199K
• Saved $200K to $499K
• Saved $500K to $1 million
• Saved $1mil to $2 million
• Saved $2mil to $3 million
• Saved over $3 million

As sales prices fall, well-informed sellers are could set more realistic prices so the gaps between the original asking price and final sales prices may not be as wide as those recorded in 2006.  We'll continue to map the location of six figure savings, and invite you to do the same on The Real Estate Cafe's award-winning interactive bubble map.  We're so convinced that our clients will save money, we're willing to base part of our compensation on it.  Contact us at 617-661-4046 or RECafe [at] Mac [dot] com for information on our experimental NEW fees and rebates options.

Technical notes:  (1) Savings based on difference between original asking price in MLS versus final sales price.  (2) If property was listed more than once, actual savings may have been greater.  (3) Properties mapped represent a partial sample based on 25 of the most expensive cities and towns outside the City of Boston, and a limited number of months during 2006.  (4) Only homes which sold for BELOW assessed value are mapped, thus many other homes which sold for more than $100,000 below their original asking price are not mapped.  (5) Neither are active listing priced $100,000 below their original asking price, or three classes of properties which failed to sell in 2006:  expired, canceled, or withdrawn listings. 

The Real Estate Cafe provides additional data and research to clients on a fee-for-service basis.

December sales below assessed value added to Real Estate Bubble Map

Looking for comps to substantiate a low-ball offer on a property in Greater Boston?  The Real Estate Cafe just added another 127 sales below assessed value, recorded in December 2006 across 25 of the most expensive cities and towns in Greater Boston, to it's award-winning real estate bubble map.   
We also posted a link to past housing price corrections to a national news site, which is looking for contributions from readers, presumably real estate professionals and consumers alike.  Your comments are welcome there, or below.

PS. Yesterday, the same news service mentioned our market research in a discussion about the advantages of working with small, independent real estate agencies:

Bill Wendel, owner of the Real Estate Cafe, a buyer’s brokerage firm in Cambridge, Mass., said it can help for small companies to take a marketing approach that is “upside-down or backwards.” As an example, he said, some real estate companies may brag about the volume of listed homes that sold for over $1 million, while Wendel’s company publishes a list of “Million Dollar Markdowns” with homes that were a good value for buyers.

Tracking properties "Priced below assessment"

Welcome Boston Globe readers and others who want to see where properties have sold recently for below assessed value.  Here are three quick links, but first a few key points:  we assume our readers know more about their local housing markets than we do, so we invite you to add your comments, post additional properties, or contribute to our wiki.  You can sign-up for updates via RSS or email (FeedBlitz).  If there is interest, we'll host our next Bubble Hour this weekend at PodCamp Boston to share insights and record some.  We'd like to begin adding audio and video clips to the bubble maps below:

Boston Bubble Map
Cape Cod Bubble Map
RealEstateBubbleMap.com

In coming days, we'll also explain how we started mapping sales below assessed value, add approximately 100 more sales from August 2006, and explain how clients can earn commission credits by adding properties, too.

Want to submit some "bubble comps" with your offer?  "Grab" what you need, and place them on your own map (we can explain how).  For more information or to record your thoughts for our Real Estate Bubble Audio Time Capsule, contact The Real Estate Cafe at [email protected] or 617-876-2117.

Are seller concessions masking deeper discounts on sales prices?

Side-by-side competition driven by the rising inventory of unsold homes across Massachusetts is creating a new kind of bidding war:  escalating financial incentives to help sell homes as soon as possible. 

Some time ago, the local MLS added a new field to document seller concessions at closing. However, entries are rare and as noted by one prominent critic, "current house price indices are failing to pick up the full decline in prices because they miss the various concessions (seller paid closing costs, buyer-side realtor bonuses, and seller subsidized mortgages) that sellers often use to move their houses."

That problem is compounded by the fact that median prices can be misleading, particularly when rival data sources reported different median prices in Massachusetts in July 2006. The Massachusetts Association of Realtors reported that single-family prices declined 3.5% statewide, while The Warren Group calculated a 6.1% decrease.  Adjusted for inflation, year-over-year prices fell 7.8% using MAR's stats and 10.2% using The Warren Group's according to BostonBubble.com.

To help get behind the confusion, The Real Estate Cafe created a real estate bubble map to document falling prices on a property-by-property basis.  We'd also love to use the map to document innovative sales incentives being offered by sellers, listings agents, and developers in Boston and beyond. Locally, one listing agent recently mailed fellow agents coupons for $20,000 off a new development in Cambridge.  That seems modest by comparison to the ambitious "Summer Full of Savings" being offered by one homebuilder across 17 developments in California.

Please let us know what's happening in your market, either by posting your comment below or on our RealEstateBubbleMap.com. We're particularly interested in learning which sales incentives you find most appealing, as well as seller concessions you've requested in recent offers (like asking sellers to pay your closing costs).

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.)