It was the Boston market's worst year since the early-1990s housing bust... the median price last year for existing homes plunged 19.3 percent between the first and second quarters, according to Global Insight, a Lexington economics and consulting firm.
This "Shoot Up, sticky down" hypothesis is where I'm actively putting my money. I could (theoretically) buy a home. But I'm continuing to rent, hoping/believing/betting that in the next 3-5 years, the slow decline (2% Y/Y) combined with inflation will bring the prices back to somtehing more reasonable.
The real bargains will be in a year or two when the banks begin to own too many properties. I remember the 1990s bust in the Boston area: one nearby vacant $160,000 house had a billboard in front of it. The bank wanted $80,000. By 2005 it was a $450,000 house.
In order for prices to remain sticky people have to be able to afford their payment now and in the future. Even deliberate inflation will not save them as the most exposed flaot with the rates. If anything deliberate inflation will make things worse. Ig uess what we've got here is sticky -prices- and plummeting -values-.
I think that the time frame for the study is the issue.. Yes, for 5 months, people could hold onto their houses.
Lets talk 2 years from now. It is simply too soon for everything to take effect. Heck, If we get the wage growth like we see in todays reports, the Fed will have to raise rates again. I don't think there are too many ways out of the box we are in.
Cal's post of that National Mortgage News column may be off the topic being discussed -- this particular study. But I think it's incredibly important to the future of home pricing at the margin. We all know that the complete abdication of prudence and responsibility on the part of mortgage lenders allowed the housing bubble to live an unnaturally long life. The way I figure it, housing would have topped out around mid-2004 if it weren't for the fact already-eroding lending standards were completely abandoned.
All those federal "guidance" letters to the lenders many months ago had little impact because they didn't have any teeth. But what's happening now is a whole different ballgame. Liquidity at the margins is draining away because the end investors for high-risk mortgage paper are balking. One look at the stock charts of the subprime lenders and/or the market pricing of riskier mortgage bonds tells you everything you need to know.
In my opinion, we're not in the midst of a 1998-style complete meltdown ... yet. But if this nascent credit tightening gets worse, we could see more failures with time.
I think too many bad mortgages have been written concentrated in the hotter mortgages. Sooner or later, the houses are going back to the lenders. The forced sales aren't clearing and enough caution is being exerted that refis are beginning to be a problem. Ameriquest lawsuit number 999, coming up!
The problem with writing loans the way the market did is that there isn't any margin, so if the market even stalls people have to come up with cash to sell. I don't know what good it does to have 100% purchase financing when the distrait borrower discovers he now has to make the cash downpayment on sale.
It's gonna crash and burn in some areas. Far from being close to recovery, we are strolling along blissfully unaware that we have almost reached the edge of the continental shelf, and that deep water is near.
I received this as part of an email a few weeks ago:
"Sellers are starting to realize theyve overpriced their houses. In Dunstable, prices have been $100 to $200 grand overpriced. And Im not kidding. Sellers of Dunstable properties currently on the market are going to flip when they see our sold price. C and I will single-handedly change the price point in Dunstable. We bought the only house in Dunstable that has sold under its assessed value in at least 4 years. Could be more, we could only research properties 4 years back. C and I got a very fair price on the house - what I think is reasonable. Prices have just been nuts. And anyone that thinks they can capitalize like their neighbors did 2+ years ago are in for an awakening."
Sippn - "Boston, center of the world" so true. We are an arrogant lot here.
I've found it fascinating that more and more street researchers are focusing on the Census vacant home inventory numbers, and have all concluded that the inventory overhang at the end of 2006 was very high. Separately, LEHC found that overall housing production exceeded household formations (net of reductions) by about 250 k a year over the last few years as builders sated investor demand.
LEHC just came out with their 2007 housing forecast (which on home prices and sales was scarily on the money for 2006, and they are calling for national home prices declines in 2007.
Their reports (released over the last few days) are must reads!!!!!
Why prices are "sticky"? Let see!The initial buyer paid $200,000 for the house.He needs to sell it for ~$225,000 to break even.(financing, commision,doc stamps etc). Do the numbers when the prices have gone down 10-15%.Not many of these so called investors have $60-70,000 laying around.Now try $400-500,000.
One more thing about "sticky prices".Now the fight is between flippers and bilders. 6-8 months will be between banks and bilders.Another 6-8 months will be just between banks.Thats when the fun begins!May God bless the REO!
In re: earlier comments on guidance lacking teeth, Wall Streets vertical integration inside the subprime sector....
You can't fault the regulators. They have been paying attention and today finally released final guidance for just the kind of structured deals that have been giving people like me the heebey-jeebies for about three years now.
We can discuss whether the five regulators have enough power to wield the stick, but they're finally moving on this. Could be too late, however. Time will tell.
CR, thanks for the great read. I find your articles insightful and balanced, and I think your bloggers are making top notch contributions. I've only become fascinated by the economy (and the tightening box we are in) over the last year, and I go to your site first for fair analysis.
One question for you or any bloggers in the know regarding RE inventory - are homes "for sale by owner" included in the inventory statistics ? Seems like, with commissions rising (in absolute terms) over the last few years, more and more savvy sellers would try to sell their homes on their own. Do these homes show up in inventory ? If not, are there any independent studies estimating the number of homes for sell by owner ?
One question for you or any bloggers in the know regarding RE inventory - are homes "for sale by owner" included in the inventory statistics ? Seems like, with commissions rising (in absolute terms) over the last few years, more and more savvy sellers would try to sell their homes on their own. Do these homes show up in inventory ? If not, are there any independent studies estimating the number of homes for sell by owner ?
My understanding is that FSBOs don't show up in NAR data. The funny thing is that I'm hearing the soft-landers saying that with transactions down and seller motivation increasing in at least some quarters, FSBOs are actually migrating to listings, not the other way around, so in this view the apparent inventory increases are just a matter of moving houses into the counted category (MLS) from the uncounted category (FSBO). In the absence of any real data, I don't know how we could really answer that. I don't see that much evidence of highly motivated sellers even in the MLS data with prices still being this "sticky." (Of course, as a long-time reader of funky appraisals, I am constitutionally suspicious of reported/contract prices on FSBO homes, just as I am with builders: there are so often unreported carrybacks, lease-backs, personal property, etc. thrown in that muddy the price effect of avoiding broker fees.) So if there are significant numbers of FSBO transactions, I'm not sure if their actual prices would end up stickier or less sticky than brokered prices.
And if that made little sense, take heart, my hearties: I'm off the Cipro tomorrow, and that means coffee. Chocolate. Dr. Pepper. Grammatically complete sentences conveying sequential thought. Or at least the first three.
Tanta, I have learned more from reading your posts, than I have from doing 8 years of real estate investments(VA, FHA, REO,Commercial).Love and hate you at the same time. I thought I knew something about real estate. Wrong!!!
Tanta - I think it is the case that some of the inventory increase is FSBO's moving to relitters. But, of course, the key number is inventory to sales, and sales should also be moving from FSBOs to relitters, so there shouldn't be an impact on the ratio. I don't think we know how big the FSBO-relitter move is, but NAR has claimed that FSBOs are less than 10% of the market, so even if a third have moved, it shouldn't be much of an impact on the total market. Either that, or NAR was wrong and FSBOs were a much bigger slice than they were letting on.
I just read the link from P Jackson (Housing Wire... great read, thx 'P')...
One point, one question...
Question: The article refers to 'Complex Structured Financial Transactions' or 'CFSTs'... anything with the words 'complex' & 'structured' coupled to 'financial' & 'Transaction' rings suspiciously like fraud to me. Can somebody go into some detail about what these are and why I shouldn't worry about them?
Point: On that same website Mr/Ms Jackson linked to... I found a link to THIS ARTICLE from the LA Times saying that the bubble is over so move on.
I guess it's time for CR to shut down the blog since everything is A-OK... at least according to Mr Harney.
I know everyone cringes when they think 'litigation' but I can tell you as a small biz guy under contract to MUCH larger corps... they will run rough shod over you unless you at least hold out the threat of potential litigation.
I can only imagine the aggressiveness of the sub-rime/predatory lenders on poor uninformed borrowers..
And this was all so avoidable.
In the recent bankruptcy reforms they should have spelled out what lenders needed to do UP FRONT in disclosure & practices to avoid liability later due to predatory lending accusations... a clear to-do check list of ethical good business practices that if followed gave them great levels of protection & immunity.
Conversely, if they couldn't show they followed these good & ethical practies... bump them to the back of the line of claimants in any bankruptcy or foreclosure proceeding. And let them explain to the judge why they should get anything.
If a process was established like that then predatory practices would've nearly evaporated (except for intensional & willful fraud) and that North Carolina lawyer would have to go back to doing divorces & DWIs.
Ron, that article is encouraging. I just hope enough lawyers learn about Gardner, do their homework and go after the genuine villians in the credit industry.
P.S. -- the comment from Snidely Whiplash at the bottom of the article was funny if not too true to our times.
The current median income in Sonoma county is $36,000. Median home prices is $534,000.
We are one hour north of San Francisco during non-communter traffic. 2hrs+ during commute hours both ways. The only folks who can afford to buy here muct be communter's. 2006 was a net drain on employment mostly construction and high tech leaving.
Median SFH prices for 2006 declined 8% from 2005. Record inventory on MLS.
Dryfly, from what I can tell from the Business Week article--and my prior exposure to this stuff--the lender errors most vulnerable to challenge in a foreclosure situation aren't the upfront ones. Believe me, there are beaucoup-jillions of "disclosure practice checklists" out there for originators--I've written a few--and while some lenders of course ignore them, fail to understand them, or defeat their purpose (usually by fanning out a set of docs for the borrower to sign without saying what they mean), these up-front disclosure problems aren't what put people in FC after one missed payment. To do that, you're talking servicing "errors." This is the kind of crap where payments don't get applied promptly after a servicing transfer, late fees get generated, then the payment gets posted but it's "short," since part of it satisfies the late fee first, so then escrow balances are credited by capitalizing T&I onto the loan balance, making the next payment short too, an ARM adjustment happens in the middle of all this, and hey! in 90 days, the loan payment history is an unrecognizable mess, the borrower can't get anywhere with the collector on the phone, and somebody's getting an NOD.
The reason I'm pretty convinced that most of this isn't "innocent" lender error is that I have, actually, spent enough time around loan servicing software to know that you can actually reverse out a bunch of transactions and start over, if you want to. But there I am, on the phone over some farkled-up loan in a loan sale, hearing some idjit tell me that this cannot be done, and I have to say, "Look, dweeb, I'm not a borrower. Tell it to the Marines." Then I get this, "Well, we have to have a senior manager override to remove a late fee." So I wait for the flippin' senior manager to wander in to take care of it, because these shops got tired of their customer service reps developing common sense and human compassion about removing inappropriate late fees, and so they set up their systems to make it almost impossible to fix a simple mistake. Someone, however, has a PowerPoint somewhere showing that all this extra income from unwaived late fees is really a wonderful thing, as long as you ignore the boadloads of money paid to the programmers and the countless hours of wasted time spent fixing things for people like me who are capable of threatening to let an entire bulk loan sale fall through unless someone types in the magic code in the next 30 minutes. I love seeing some spunky borrowers siccing some lawyers on the lender for this kind of crap.
The thing to remember is that there are not all that many mortgage servicers left. What we probably need as an industry is to have servicing go back to being more "expensive"--labor-intensive not offset with usurious fees--as a result of legal and regulatory challenges, which will make the mega-consolidation less attractive, perhaps, and offer some real competition.
Mr. Lereah said, "Weve entered a more sustainable period of home sales now."
How sustainable are the aggregate commissions from existing home sales, and how does '06 compare with '05? If nothing's selling, I can't imagine that the same number of realtors can afford to make a living in all of this.
Mike, you can get aggregate commission data from the BEA. This table shows Brokers' commissions on residential property (see line 43).
Commissions peaked in Q3 2005, and have been declining every quarter. Meanwhile the number of licensed agents keep climbing every month. If Berson is correct on the number of sales next year, RE agents will really feel the squeeze.
Ron: "The current median income in Sonoma county is $36,000. Median home price is $534,000."
Beside the macroeconomic issues we also have some poignant human issues around the SF Bay area. Low income and retired folks face homelessness if they lose their current housing. People are caught in a housing crunch they never expected. Can we have a situation of "middle class" and homeless.
Tanta,I would love to see two guys who used to flip hamburgers for a living, one explaing to a jury how a neg. arm works and the other,how representing the buyer and the seller at the same time is a great idea.And I thought what happend in eastern Europe 10 years ago was stupid.(That's where I came from)
Fred:
shelters in the San Francsico Bay area have significant number of full and partime workers. My daughter and I have both done work for the local food banks and shelters and know first hand the many hard working people that cannot afford housing.
ron: sshhhh! Don't give them any ideas. Otherwise they might replace Owner's Equivalent Rent with Cost Per Occupant at the local shelter as part of hedonic adjustments in the CPI.
Boston money guru Rick Shaffer commented on this article on his radio show today.
He indicated that there "IS NO REAL ESTATE BUBBLE in Massachusetts." The reason for this is that, unlike the late 80's, there are not alot of investors. Most property is now owner occupied. As he said "An investor will just sell when they feel they are not going to have any more gains. A homeowner is not nearly as inclined to sell as the investors in a down market."
I think he may have some points there. He only mentioned in passing that individuals with ARMs (as if that's a small group) might get into trouble if short term rates go up. I do not think he is aware of how many people took out risky mortgages. Yes, even in Massachusetts. California doesn't have a monopoly on bad lending.
I believe that you are correct in your assessment. The front end problems are still there, but the servicing end of the problem is starting to get onto the radar screen of interested parties. Presumably jurisdictional issues will be a problem.
I had friends working out there when the oil patch crashed - it really sucked. Colorado seems to get hit just about every time the poop hits the fan no matter which way its aiming.
On the MLS for my Chicago NW suburb, the number of single-family homes listed at $600k+ is 113 out of total MLS listings currently 262 ($700k+ number 76). Meanwhile, a query through the Chicago Tribune web page for "Closing prices and transactions of Chicago-area homes"* shows only 111 homes sold for over $600k in 2006 through Nov 21, and only 58 over $700k. Since some homes never list on the MLS (FSBO, developers direct sales, custom construction, etc.), there's clearly more than 9 months' inventory out there in the $600k+ price range (guesstimating that the number of homes under contract but still listed pending closing can't be much above 20). When the homes taken off-market for the holidays are thrown back on in the spring, inventory should exceed 12 months in this price range.
Many of these expensive homes can be seen from the listing photos to have been vacant for many months -- some are just empty of furniture, others appear staged, with no window treatments and furniture not matching the price range, and a significant fraction are still under construction scheduled for March 07 completion. It would be nice to know how many more have gone vacant since the photos were taken.
*(Tribune uses a service that monitors the county records, with about two months lag from the actual sales.)
The lower end loans originated in 2006 (the -2 designations) are performing horribly. But I admit credit default swaps are beyond my comprehension at this point, I'm working to learn more.
My suggestion would be to ask your broker, assuming you work with one, to put you in touch with someone genuinely qualified to answer your questions.
Alternatively, if you're a lone ranger, I'd telephone or e-mail Markit's press contact, tell them you are doing research, and ask for help. I've found that telephone calls usually work better as they're more personal and get attention faster. PR people love to talk, so if you're reasonably good on a telephone they'll probably deluge you with information.
This isn't a direct answer to your questions but, as I said, I admire your scholarship. Be cheeky! You never know what kind of lead you'll get.
Cal I second what mp said - and if you DO learn something PLEASE share with us - I'd be very very thankful for a guided tour of this underworld... from the most basic to the subtle inferences.
I think what you're looking at here is basically indices on conduit tranche bonds or similar (I just skimmed the documentation.)
Essentially, mortgages pools are converted into bonds, rated AAA, AA, A, BBB, and BBB-. I'm guessing the structure prepays the top tranche first, defaults get applied to the bottom tranche first, payments are applied top tranche down, etc. There's probably a reserve fund on the pool that can make up shortfalls.
For each tranche, ABX combines 20 bonds and uses their prices to create an index (just like the DJIA.) Now you have a nice index that lets you hedge risk or take bets on defaults, prepays, etc (e.g. if you think the A tranche is actually in worse shape than concensus, short the A and buy the BBB.)
So what seems to have happened is that 2/20 of the BBB/BBB- bonds have enough defaults/late payments that they couldn't pay their full coupons (only missed by 1-1.5 basis points.) But for bonds less than a year old, that does look ugly (the A index is down a little, the BBB/BBB-s look seriously ugly.)
Oh, this is cool: you can get the index compositions from MarkIt, google for the bond names to get the Edgar page. There you get lots of filings with 30/60/90 days late, tranche sizes and interest rates, foreclosure, bankruptcy, REO numbers, etc.
From our friends down under... Economists tip growth but warn on private equity bids "The current boom in private equity will make it more likely that the next recession will unnecessarily be associated with a financial shock as per 1991," said Dr Peter Brain from the National Institute of Economic and Industry Research. "This will make the recession more severe than what needed to be the case." Economists tip growth but warn on private equity bids - Business - Business
Both Rubenstein at Carlyle (CNBC) and somebody at KKR (WSJ) have commented on how there is credit everywhere for these deals. Another finger of instability.
I've heard a rumor that even Congress is considering an offer from one of the top private equity firms. They expect to get considerable efficiency gains out of a fully vertically-integrated pork industry -- which means lower costs to you, the consumer.
$10mm in principal insured for $35k. Now the premium's gone up to $59k -- but that still sounds unbelievably cheap to me. Is it any wonder that credit spreads have become meaningless?
"Instead, average selling prices fell just 6.3 percent."
According to a January 2006 paper by Papadimitriou, Chilcote and Zezza, "Are Housing Prices, Household Debt, and Growth Sustainable?", that would just about vaporize $1 trillion in equity.
Interesting paper - a 20% drop in housing prices (perhaps not unreasonable given the housing price to rent ratio) would vaporize 3.8T per Papadimitriou et al. So long MEW...
for those trying to compare this cycle to previous ones, from the Levy paper...
Given the patterns seen in the late 1970s, 1980s, and early 1990s, we would have expected the price-to-rent ratio to have turned in the late 1990s. From the trough of 1993 to the still unknown peak, more than 12 years have passed. Based on previous patterns, the turning point is at least seven years overdue. The price-to-rent ratio in 2004 was 34 percent higher than the trough in 1993 and 24 pecenter higher than the last highest peak in 1979. Furthermore, housing prices appreciated in 2005.
... Moreover, residential landlords have less power to raise rents today than in the past because vacancy rates are at historic highs. In the 1970s and 1980s, vacancy rates, as shown in Figure 3, varied from 5 percent to 7.7 percent. In the 1990s, vacancy rates varied from 7.2 percent to 8.1 percent. In the last five years vacancy rates have climbed steadily from around 8 percent in 2000 to near 10 percent in 2005, which suggests that the stock of rental housing exceeds demands.
...
Figure 7, Household-Sector Financial-Asset-to-Liability Ratio is depressing. It looks like a decaying exponential (from 1955-2003).
I've posted before that the most listened to personal finance show host in Boston tells his listeners that, although there may be real estate bubbles elsewhere in the country, there's no bubble in Boston.
I'm curious, is this the same thing you hear in other parts of the country "there's no problem here, it's everyone else; we're different; all real estate is local, etc." ??
That's what I hear - in some cases they are right & some cases they are wrong.
But where I live prices can change by a factor of 3:1 within a 100 mile radius. I was looking on line this weekend and properties in some of the nicer Twin City suburbs that would sell for $450K would have a tough time getting offers at $150K and hour away in rural Minnesota... my town is somewhere in between. And btw - none of these locations are 'slums'... in fact my location is where the 'Twin City people' come to vacation & antique hunt... yet properties are still half what they are in the city less than an hour drive away.
So 'yes' real estate can be local (and I mean REALLY local as opposed to 'regional')... in some places.
I would guess few places though have that crazy a drop off in valuations... but it isn't that unusual out here in flyover.
And there is a reason for this... out here as you move out from the center, there is so much open land that supply can expand to match demand very quickly - not possible in older, more densely settled communities.
So I would guess that in your case - Massachusetts, that the market is more 'regional' than local... and more uniform overall... and more bubbly. I'd be shocked if you could draw a hundred mile radius and find 3:1 valuation differences for similar offerings.
I saw an interesting chart today which showed the cycle of market emotions. From the top, which is Euporia, it goes to Anxiety, Denial, Fear, Desperation, Panic, Capitulation, Despondency, and Depression (the bottom). I think these sticky prices and few transactions show we are in the Denial phase. Comments?
I posted some pricing and inventory numbers above for my Chicago NW suburb. I've been watching the MLS here closely since May. Prices are definitely sticky. Although there were price reductions in the fall on many of those properties that hadn't sold, they were small, and nearly all "one-time". One McMansion priced at $750k in May was finally reduced to $724.9k about two months ago (wow, 3% off, what a bargain), but still sits. Some of the price-reduced properties have shown up on the rental market, but of course at rental rates no one will pay. The owners are clearly in denial. I'm wondering how long it will be before they have to capitulate, and the prices become "unstuck".
Lama wrote - "I'm curious, is this the same thing you hear in other parts of the country "there's no problem here, it's everyone else; we're different; all real estate is local, etc." "
Yup - exactly the same story up in Canada - my sister in law in Victoria BC said virtually the same thing just a few days ago "oh, I'm sure prices will drop in quite a few places, but Victoria is a really unique market, I don't think we'll see any big change here"
"So I would guess that in your case - Massachusetts, that the market is more 'regional' than local... and more uniform overall... and more bubbly. I'd be shocked if you could draw a hundred mile radius and find 3:1 valuation differences for similar offerings"
Lama, I live in the Boston area, and while there may not be a "bubble" in the sense of house-flipping by investors, there sure was a huge surge in housing prices in the past few years which has rendered the market unaffordable for most people.
From reading the Boston Globe, I get the feeling that there are far too many people around here who bought a house now because they were panicky and believed they would never be able to get into the market later. If that's not bubble mentality, I don't know what is. And for those people, all their assets are in their house. That's not healthy.
Housing prices here may not drop significantly if people can afford to stay in their houses. But I don't see how prices can rise any time soon, unless we all get huge raises and the stock market keeps doing well, or something. The basic unaffordability of housing in the Eastern MA seems unsustainable to me, whether there is/was a bubble or not.
I think Weston is relatively bubble-proof because of its hoity-toityness and unwillingness to let anyone but gazillionaires move in in the first place ... but the rest of those towns are probably vulnerable to a drop in housing prices.
My point was not anti-bubble. I was just addressing dryfly's faulty assumption that Mass real estate prices were more uniform.
Our supreme progressive oligarchy has sustained vast wealth imbalances for decades despite its platform of social equity. Must be some bug in the system - they'll get it worked out soon.
In general I'm a dryfly fan. But you have to live in Massachusetts to believe it.
I track my own stats from MLS, including relistings based on the pictures. The recent inventory drop was not balanced by equal sales. Expect an avalanch of familiar addresses back on MLS come March.
Are the homes really comparable - communities, quality, proximity to work?
'Cause out here in flyover (if you exclude lake frontage vs slum like differences) the major thing that differentiates price is 'commute'... move out and prices drop off pretty fast. But within say a 10 mile area... RE almost behaves like a commodity.
But not all 'commodities' are the same... there is lead vs lead - the same and lead vs gold - not the same.
Example I saw a 3 BR 'lakefront townhome' west of Mpls about 30 miles for $550K - outrageous considering 'lakefrontage' meant there was a channel cut to give this dump 'access' to the lake - and if access means you can paddle a canoe out.
That same townhome, same area, without 'access' is $200K max.
You take that same place w/ similar lake access and move out 75-100 miles and it drops to $200K max.
Lakefront to no-lakefront? Big change. But just moving the location 10 miles? Not much change unless there is more to the story.
The Concord-Stow offering is really 'the same' except for price?
Weston and Waltham are very different animals in terms of population density and income.
Concord and Stow are less so. The added value for Concord is a Revolutionary war historical flair, and Henry David Thoreau's little wood hut.
The houses, the commute, the birds-eye view are mostly equivalent. The difference in town- provided services, school system, in- town retail and restaraunt amenities are rooted in the median income and property tax collection differential.
Same access to Rt 2, same lake/pond frontage. Town sewer vs septic, existing $70million school vs coming battle for funding.
Concord seems to be 3x richer today because the current denizens bid it up when it was admirably 2.5x richer. How much is a front row seat to the annual mock blunderbussing of Redcoats really worth?
I think what you experience up in Twin Cities and rural MN are what we experience in Houston. The farther out from the center of the city that you go, the longer the commute on a linear basis, but the usable area for building homes grows by a factor of 3 (or Pi?). Therefore, one spot really is as good as the next once you are far enough out, prices are low as older homes must compete with new mega-communities being slapped together by builders.
Name,
I believe there is a very high premium on the Olde Concord snob appeal. It has always been there. I'd add that it is much closer than Stow to all the high-tech on the 128 beltway and downtown Boston.
National Mortgage News - What We're Hearing
OT: More info from the mortgage front
Could this be right?
December 24, 2006...
It was the Boston market's worst year since the early-1990s housing bust... the median price last year for existing homes plunged 19.3 percent between the first and second quarters, according to Global Insight, a Lexington economics and consulting firm.
Year in review - The Boston Globe
I have a hard time believing that, but if it's true the sticky price theory might be in jeopardy.
This "Shoot Up, sticky down" hypothesis is where I'm actively putting my money. I could (theoretically) buy a home. But I'm continuing to rent, hoping/believing/betting that in the next 3-5 years, the slow decline (2% Y/Y) combined with inflation will bring the prices back to somtehing more reasonable.
"I suspect a 6.3% price decline in Boston felt like a "price implosion" to some sellers!"
Prices level to declining. That's all it takes.
The real bargains will be in a year or two when the banks begin to own too many properties. I remember the 1990s bust in the Boston area: one nearby vacant $160,000 house had a billboard in front of it. The bank wanted $80,000. By 2005 it was a $450,000 house.
In order for prices to remain sticky people have to be able to afford their payment now and in the future. Even deliberate inflation will not save them as the most exposed flaot with the rates. If anything deliberate inflation will make things worse. Ig uess what we've got here is sticky -prices- and plummeting -values-.
But if there is no inflation (or not a lot) don't prices have to fall eventually?
I think that the time frame for the study is the issue.. Yes, for 5 months, people could hold onto their houses.
Lets talk 2 years from now. It is simply too soon for everything to take effect. Heck, If we get the wage growth like we see in todays reports, the Fed will have to raise rates again. I don't think there are too many ways out of the box we are in.
Make no mistake, buyers (the few remaining) smell blood on the floor. They're going to sit tight until they get big price drops, big 'uns!
ac - Median price and average [mean] price are different.
"I suspect a 6.3% price decline in Boston felt like a "price implosion" to some sellers!"
:::::
Prices level to declining. That's all it takes.
I agree. Add to that the 6% commission and we are starting to cheat into people's LTVs. That hurts.
ac - Median price and average [mean] price are different.
AG | 01.05.07 - 6:55 pm | #
Median price seems to be the preferred indicator for house prices.
Cal's post of that National Mortgage News column may be off the topic being discussed -- this particular study. But I think it's incredibly important to the future of home pricing at the margin. We all know that the complete abdication of prudence and responsibility on the part of mortgage lenders allowed the housing bubble to live an unnaturally long life. The way I figure it, housing would have topped out around mid-2004 if it weren't for the fact already-eroding lending standards were completely abandoned.
All those federal "guidance" letters to the lenders many months ago had little impact because they didn't have any teeth. But what's happening now is a whole different ballgame. Liquidity at the margins is draining away because the end investors for high-risk mortgage paper are balking. One look at the stock charts of the subprime lenders and/or the market pricing of riskier mortgage bonds tells you everything you need to know.
In my opinion, we're not in the midst of a 1998-style complete meltdown ... yet. But if this nascent credit tightening gets worse, we could see more failures with time.
Interest Rate Roundup
Who blinks first ?
I say mostly 'in denial' sellers
Max pain in 2008/09.
Real estate buy/sell will be most interesting then.
I think too many bad mortgages have been written concentrated in the hotter mortgages. Sooner or later, the houses are going back to the lenders. The forced sales aren't clearing and enough caution is being exerted that refis are beginning to be a problem. Ameriquest lawsuit number 999, coming up!
The problem with writing loans the way the market did is that there isn't any margin, so if the market even stalls people have to come up with cash to sell. I don't know what good it does to have 100% purchase financing when the distrait borrower discovers he now has to make the cash downpayment on sale.
It's gonna crash and burn in some areas. Far from being close to recovery, we are strolling along blissfully unaware that we have almost reached the edge of the continental shelf, and that deep water is near.
Case "estimated" the norm at 70% - I hope we're a good statistition and checked the baseline.
How much did aggressive new home pricing affect resale?
Is his sample in close, or on the edge of town? you'll get different rates.
He's tracking a really small sample - 30 homes.
Of course, Boston is the center of the world.
No doubt there's a problem.
I received this as part of an email a few weeks ago:
"Sellers are starting to realize theyve overpriced their houses. In Dunstable, prices have been $100 to $200 grand overpriced. And Im not kidding. Sellers of Dunstable properties currently on the market are going to flip when they see our sold price. C and I will single-handedly change the price point in Dunstable. We bought the only house in Dunstable that has sold under its assessed value in at least 4 years. Could be more, we could only research properties 4 years back. C and I got a very fair price on the house - what I think is reasonable. Prices have just been nuts. And anyone that thinks they can capitalize like their neighbors did 2+ years ago are in for an awakening."
Sippn - "Boston, center of the world" so true. We are an arrogant lot here.
Sippin, Case is tracking 628 homes - a decent sample size.
Best Wishes.
I've found it fascinating that more and more street researchers are focusing on the Census vacant home inventory numbers, and have all concluded that the inventory overhang at the end of 2006 was very high. Separately, LEHC found that overall housing production exceeded household formations (net of reductions) by about 250 k a year over the last few years as builders sated investor demand.
LEHC just came out with their 2007 housing forecast (which on home prices and sales was scarily on the money for 2006, and they are calling for national home prices declines in 2007.
Their reports (released over the last few days) are must reads!!!!!
Why prices are "sticky"? Let see!The initial buyer paid $200,000 for the house.He needs to sell it for ~$225,000 to break even.(financing, commision,doc stamps etc). Do the numbers when the prices have gone down 10-15%.Not many of these so called investors have $60-70,000 laying around.Now try $400-500,000.
One more thing about "sticky prices".Now the fight is between flippers and bilders. 6-8 months will be between banks and bilders.Another 6-8 months will be just between banks.Thats when the fun begins!May God bless the REO!
In re: earlier comments on guidance lacking teeth, Wall Streets vertical integration inside the subprime sector....
You can't fault the regulators. They have been paying attention and today finally released final guidance for just the kind of structured deals that have been giving people like me the heebey-jeebies for about three years now.
We can discuss whether the five regulators have enough power to wield the stick, but they're finally moving on this. Could be too late, however. Time will tell.
Yes, but they only control depositories.
CR, thanks for the great read. I find your articles insightful and balanced, and I think your bloggers are making top notch contributions. I've only become fascinated by the economy (and the tightening box we are in) over the last year, and I go to your site first for fair analysis.
One question for you or any bloggers in the know regarding RE inventory - are homes "for sale by owner" included in the inventory statistics ? Seems like, with commissions rising (in absolute terms) over the last few years, more and more savvy sellers would try to sell their homes on their own. Do these homes show up in inventory ? If not, are there any independent studies estimating the number of homes for sell by owner ?
Again, thank you for the great site.
Yea I saw that as soon as my fingers pushed "return." 628 is a decent sample.
One question for you or any bloggers in the know regarding RE inventory - are homes "for sale by owner" included in the inventory statistics ? Seems like, with commissions rising (in absolute terms) over the last few years, more and more savvy sellers would try to sell their homes on their own. Do these homes show up in inventory ? If not, are there any independent studies estimating the number of homes for sell by owner ?
My understanding is that FSBOs don't show up in NAR data. The funny thing is that I'm hearing the soft-landers saying that with transactions down and seller motivation increasing in at least some quarters, FSBOs are actually migrating to listings, not the other way around, so in this view the apparent inventory increases are just a matter of moving houses into the counted category (MLS) from the uncounted category (FSBO). In the absence of any real data, I don't know how we could really answer that. I don't see that much evidence of highly motivated sellers even in the MLS data with prices still being this "sticky." (Of course, as a long-time reader of funky appraisals, I am constitutionally suspicious of reported/contract prices on FSBO homes, just as I am with builders: there are so often unreported carrybacks, lease-backs, personal property, etc. thrown in that muddy the price effect of avoiding broker fees.) So if there are significant numbers of FSBO transactions, I'm not sure if their actual prices would end up stickier or less sticky than brokered prices.
And if that made little sense, take heart, my hearties: I'm off the Cipro tomorrow, and that means coffee. Chocolate. Dr. Pepper. Grammatically complete sentences conveying sequential thought. Or at least the first three.
Tanta, I have learned more from reading your posts, than I have from doing 8 years of real estate investments(VA, FHA, REO,Commercial).Love and hate you at the same time. I thought I knew something about real estate. Wrong!!!
Just found this blog, great stuff, thank you
interesting article about training lawyers to go after lenders and brokers.
Bankruptcy Boot Camp
Tanta - I think it is the case that some of the inventory increase is FSBO's moving to relitters. But, of course, the key number is inventory to sales, and sales should also be moving from FSBOs to relitters, so there shouldn't be an impact on the ratio. I don't think we know how big the FSBO-relitter move is, but NAR has claimed that FSBOs are less than 10% of the market, so even if a third have moved, it shouldn't be much of an impact on the total market. Either that, or NAR was wrong and FSBOs were a much bigger slice than they were letting on.
I just read the link from P Jackson (Housing Wire... great read, thx 'P')...
One point, one question...
Question: The article refers to 'Complex Structured Financial Transactions' or 'CFSTs'... anything with the words 'complex' & 'structured' coupled to 'financial' & 'Transaction' rings suspiciously like fraud to me. Can somebody go into some detail about what these are and why I shouldn't worry about them?
Point: On that same website Mr/Ms Jackson linked to... I found a link to THIS ARTICLE from the LA Times saying that the bubble is over so move on.
I guess it's time for CR to shut down the blog since everything is A-OK... at least according to Mr Harney.
Whew... what a relief.
ron - that is a great article, thx.
I know everyone cringes when they think 'litigation' but I can tell you as a small biz guy under contract to MUCH larger corps... they will run rough shod over you unless you at least hold out the threat of potential litigation.
I can only imagine the aggressiveness of the sub-rime/predatory lenders on poor uninformed borrowers..
And this was all so avoidable.
In the recent bankruptcy reforms they should have spelled out what lenders needed to do UP FRONT in disclosure & practices to avoid liability later due to predatory lending accusations... a clear to-do check list of ethical good business practices that if followed gave them great levels of protection & immunity.
Conversely, if they couldn't show they followed these good & ethical practies... bump them to the back of the line of claimants in any bankruptcy or foreclosure proceeding. And let them explain to the judge why they should get anything.
If a process was established like that then predatory practices would've nearly evaporated (except for intensional & willful fraud) and that North Carolina lawyer would have to go back to doing divorces & DWIs.
Ron, that article is encouraging. I just hope enough lawyers learn about Gardner, do their homework and go after the genuine villians in the credit industry.
P.S. -- the comment from Snidely Whiplash at the bottom of the article was funny if not too true to our times.
The current median income in Sonoma county is $36,000. Median home prices is $534,000.
We are one hour north of San Francisco during non-communter traffic. 2hrs+ during commute hours both ways. The only folks who can afford to buy here muct be communter's. 2006 was a net drain on employment mostly construction and high tech leaving.
Median SFH prices for 2006 declined 8% from 2005. Record inventory on MLS.
How long can prices be Sticky for sellers?
Dryfly, from what I can tell from the Business Week article--and my prior exposure to this stuff--the lender errors most vulnerable to challenge in a foreclosure situation aren't the upfront ones. Believe me, there are beaucoup-jillions of "disclosure practice checklists" out there for originators--I've written a few--and while some lenders of course ignore them, fail to understand them, or defeat their purpose (usually by fanning out a set of docs for the borrower to sign without saying what they mean), these up-front disclosure problems aren't what put people in FC after one missed payment. To do that, you're talking servicing "errors." This is the kind of crap where payments don't get applied promptly after a servicing transfer, late fees get generated, then the payment gets posted but it's "short," since part of it satisfies the late fee first, so then escrow balances are credited by capitalizing T&I onto the loan balance, making the next payment short too, an ARM adjustment happens in the middle of all this, and hey! in 90 days, the loan payment history is an unrecognizable mess, the borrower can't get anywhere with the collector on the phone, and somebody's getting an NOD.
The reason I'm pretty convinced that most of this isn't "innocent" lender error is that I have, actually, spent enough time around loan servicing software to know that you can actually reverse out a bunch of transactions and start over, if you want to. But there I am, on the phone over some farkled-up loan in a loan sale, hearing some idjit tell me that this cannot be done, and I have to say, "Look, dweeb, I'm not a borrower. Tell it to the Marines." Then I get this, "Well, we have to have a senior manager override to remove a late fee." So I wait for the flippin' senior manager to wander in to take care of it, because these shops got tired of their customer service reps developing common sense and human compassion about removing inappropriate late fees, and so they set up their systems to make it almost impossible to fix a simple mistake. Someone, however, has a PowerPoint somewhere showing that all this extra income from unwaived late fees is really a wonderful thing, as long as you ignore the boadloads of money paid to the programmers and the countless hours of wasted time spent fixing things for people like me who are capable of threatening to let an entire bulk loan sale fall through unless someone types in the magic code in the next 30 minutes. I love seeing some spunky borrowers siccing some lawyers on the lender for this kind of crap.
The thing to remember is that there are not all that many mortgage servicers left. What we probably need as an industry is to have servicing go back to being more "expensive"--labor-intensive not offset with usurious fees--as a result of legal and regulatory challenges, which will make the mega-consolidation less attractive, perhaps, and offer some real competition.
Mr. Lereah said, "Weve entered a more sustainable period of home sales now."
How sustainable are the aggregate commissions from existing home sales, and how does '06 compare with '05? If nothing's selling, I can't imagine that the same number of realtors can afford to make a living in all of this.
Mike, you can get aggregate commission data from the BEA. This table shows Brokers' commissions on residential property (see line 43).
Commissions peaked in Q3 2005, and have been declining every quarter. Meanwhile the number of licensed agents keep climbing every month. If Berson is correct on the number of sales next year, RE agents will really feel the squeeze.
Best to all.
Ron: "The current median income in Sonoma county is $36,000. Median home price is $534,000."
Beside the macroeconomic issues we also have some poignant human issues around the SF Bay area. Low income and retired folks face homelessness if they lose their current housing. People are caught in a housing crunch they never expected. Can we have a situation of "middle class" and homeless.
Tanta,I would love to see two guys who used to flip hamburgers for a living, one explaing to a jury how a neg. arm works and the other,how representing the buyer and the seller at the same time is a great idea.And I thought what happend in eastern Europe 10 years ago was stupid.(That's where I came from)
Fred:
shelters in the San Francsico Bay area have significant number of full and partime workers. My daughter and I have both done work for the local food banks and shelters and know first hand the many hard working people that cannot afford housing.
ron: sshhhh! Don't give them any ideas. Otherwise they might replace Owner's Equivalent Rent with Cost Per Occupant at the local shelter as part of hedonic adjustments in the CPI.
Boston money guru Rick Shaffer commented on this article on his radio show today.
He indicated that there "IS NO REAL ESTATE BUBBLE in Massachusetts." The reason for this is that, unlike the late 80's, there are not alot of investors. Most property is now owner occupied. As he said "An investor will just sell when they feel they are not going to have any more gains. A homeowner is not nearly as inclined to sell as the investors in a down market."
I think he may have some points there. He only mentioned in passing that individuals with ARMs (as if that's a small group) might get into trouble if short term rates go up. I do not think he is aware of how many people took out risky mortgages. Yes, even in Massachusetts. California doesn't have a monopoly on bad lending.
Tanta
Enjoy your chocolate!
I'll be able to eat mine without guilt.
Tanta:
I am glad you are feeling better.
I believe that you are correct in your assessment. The front end problems are still there, but the servicing end of the problem is starting to get onto the radar screen of interested parties. Presumably jurisdictional issues will be a problem.
Just shotup the Phoenix Report and changed the entire thebubblebuster.com website.
Additionally, the website contains new historical data for another 20+ cities. Check it out...
Saw this in the comments on one of Mish's threads...
Denver foreclosures pass 1980s record
I had friends working out there when the oil patch crashed - it really sucked. Colorado seems to get hit just about every time the poop hits the fan no matter which way its aiming.
On the MLS for my Chicago NW suburb, the number of single-family homes listed at $600k+ is 113 out of total MLS listings currently 262 ($700k+ number 76). Meanwhile, a query through the Chicago Tribune web page for "Closing prices and transactions of Chicago-area homes"* shows only 111 homes sold for over $600k in 2006 through Nov 21, and only 58 over $700k. Since some homes never list on the MLS (FSBO, developers direct sales, custom construction, etc.), there's clearly more than 9 months' inventory out there in the $600k+ price range (guesstimating that the number of homes under contract but still listed pending closing can't be much above 20). When the homes taken off-market for the holidays are thrown back on in the spring, inventory should exceed 12 months in this price range.
Many of these expensive homes can be seen from the listing photos to have been vacant for many months -- some are just empty of furniture, others appear staged, with no window treatments and furniture not matching the price range, and a significant fraction are still under construction scheduled for March 07 completion. It would be nice to know how many more have gone vacant since the photos were taken.
*(Tribune uses a service that monitors the county records, with about two months lag from the actual sales.)
I'm wondering if someone who might know anything about the ABX index could make sense of the following:
http://www.markit.com/information/affiliations/abx/alertParagraphs/01/document/ABX%20nov27.pdf
This is the "event" that preceded all the subprimes going under as far as I can tell.
ABX Index can be found here:
Apache Tomcat/5.0.28 - Error report
The lower end loans originated in 2006 (the -2 designations) are performing horribly. But I admit credit default swaps are beyond my comprehension at this point, I'm working to learn more.
ABX docs:
Apache Tomcat/5.0.28 - Error report
Cal, I admire your scholarship.
My suggestion would be to ask your broker, assuming you work with one, to put you in touch with someone genuinely qualified to answer your questions.
Alternatively, if you're a lone ranger, I'd telephone or e-mail Markit's press contact, tell them you are doing research, and ask for help. I've found that telephone calls usually work better as they're more personal and get attention faster. PR people love to talk, so if you're reasonably good on a telephone they'll probably deluge you with information.
This isn't a direct answer to your questions but, as I said, I admire your scholarship. Be cheeky! You never know what kind of lead you'll get.
Cal I second what mp said - and if you DO learn something PLEASE share with us - I'd be very very thankful for a guided tour of this underworld... from the most basic to the subtle inferences.
Cal,
I think what you're looking at here is basically indices on conduit tranche bonds or similar (I just skimmed the documentation.)
Essentially, mortgages pools are converted into bonds, rated AAA, AA, A, BBB, and BBB-. I'm guessing the structure prepays the top tranche first, defaults get applied to the bottom tranche first, payments are applied top tranche down, etc. There's probably a reserve fund on the pool that can make up shortfalls.
For each tranche, ABX combines 20 bonds and uses their prices to create an index (just like the DJIA.) Now you have a nice index that lets you hedge risk or take bets on defaults, prepays, etc (e.g. if you think the A tranche is actually in worse shape than concensus, short the A and buy the BBB.)
So what seems to have happened is that 2/20 of the BBB/BBB- bonds have enough defaults/late payments that they couldn't pay their full coupons (only missed by 1-1.5 basis points.) But for bonds less than a year old, that does look ugly (the A index is down a little, the BBB/BBB-s look seriously ugly.)
Cal,
Oh, this is cool: you can get the index compositions from MarkIt, google for the bond names to get the Edgar page. There you get lots of filings with 30/60/90 days late, tranche sizes and interest rates, foreclosure, bankruptcy, REO numbers, etc.
gorobei - Cool? More like frightening....
From our friends down under...
Economists tip growth but warn on private equity bids
"The current boom in private equity will make it more likely that the next recession will unnecessarily be associated with a financial shock as per 1991," said Dr Peter Brain from the National Institute of Economic and Industry Research. "This will make the recession more severe than what needed to be the case."
Economists tip growth but warn on private equity bids - Business - Business
Both Rubenstein at Carlyle (CNBC) and somebody at KKR (WSJ) have commented on how there is credit everywhere for these deals. Another finger of instability.
I've heard a rumor that even Congress is considering an offer from one of the top private equity firms. They expect to get considerable efficiency gains out of a fully vertically-integrated pork industry -- which means lower costs to you, the consumer.
$10mm in principal insured for $35k. Now the premium's gone up to $59k -- but that still sounds unbelievably cheap to me. Is it any wonder that credit spreads have become meaningless?
Blackstone Offer for EOP Bonds May Fail, Swaps Show (Update3) - Bloomberg.com
4shzl: I think the main purpose of credit default swaps right now is a handy mechanism for insider trading.
Insider Trading Based on Credit Default Swaps Persists -- Who Will Fill the Enforcement Vacuum? -- Seeking Alpha
I feel sorry for anybody participating in that market that ISN'T trading on private information. If you can't spot the sucker...
"Instead, average selling prices fell just 6.3 percent."
According to a January 2006 paper by Papadimitriou, Chilcote and Zezza, "Are Housing Prices, Household Debt, and Growth Sustainable?", that would just about vaporize $1 trillion in equity.
The page cannot be found
Interesting paper - a 20% drop in housing prices (perhaps not unreasonable given the housing price to rent ratio) would vaporize 3.8T per Papadimitriou et al. So long MEW...
for those trying to compare this cycle to previous ones, from the Levy paper...
Given the patterns seen in the late 1970s, 1980s, and early 1990s, we would have expected the price-to-rent ratio to have turned in the late 1990s. From the trough of 1993 to the still unknown peak, more than 12 years have passed. Based on previous patterns, the turning point is at least seven years overdue. The price-to-rent ratio in 2004 was 34 percent higher than the trough in 1993 and 24 pecenter higher than the last highest peak in 1979. Furthermore, housing prices appreciated in 2005.
...
Moreover, residential landlords have less power to raise rents today than in the past because vacancy rates are at historic highs. In the 1970s and 1980s, vacancy rates, as shown in Figure 3, varied from 5 percent to 7.7 percent. In the 1990s, vacancy rates varied from 7.2 percent to 8.1 percent. In the last five years vacancy rates have climbed steadily from around 8 percent in 2000 to near 10 percent in 2005, which suggests that the stock of rental housing exceeds demands.
...
Figure 7, Household-Sector Financial-Asset-to-Liability Ratio is depressing. It looks like a decaying exponential (from 1955-2003).
I've posted before that the most listened to personal finance show host in Boston tells his listeners that, although there may be real estate bubbles elsewhere in the country, there's no bubble in Boston.
I'm curious, is this the same thing you hear in other parts of the country "there's no problem here, it's everyone else; we're different; all real estate is local, etc." ??
That's what I hear - in some cases they are right & some cases they are wrong.
But where I live prices can change by a factor of 3:1 within a 100 mile radius. I was looking on line this weekend and properties in some of the nicer Twin City suburbs that would sell for $450K would have a tough time getting offers at $150K and hour away in rural Minnesota... my town is somewhere in between. And btw - none of these locations are 'slums'... in fact my location is where the 'Twin City people' come to vacation & antique hunt... yet properties are still half what they are in the city less than an hour drive away.
So 'yes' real estate can be local (and I mean REALLY local as opposed to 'regional')... in some places.
I would guess few places though have that crazy a drop off in valuations... but it isn't that unusual out here in flyover.
And there is a reason for this... out here as you move out from the center, there is so much open land that supply can expand to match demand very quickly - not possible in older, more densely settled communities.
So I would guess that in your case - Massachusetts, that the market is more 'regional' than local... and more uniform overall... and more bubbly. I'd be shocked if you could draw a hundred mile radius and find 3:1 valuation differences for similar offerings.
I was unclear - last post was referring to Lama's post on 'do they say your market is local'?
I saw an interesting chart today which showed the cycle of market emotions. From the top, which is Euporia, it goes to Anxiety, Denial, Fear, Desperation, Panic, Capitulation, Despondency, and Depression (the bottom). I think these sticky prices and few transactions show we are in the Denial phase. Comments?
I posted some pricing and inventory numbers above for my Chicago NW suburb. I've been watching the MLS here closely since May. Prices are definitely sticky. Although there were price reductions in the fall on many of those properties that hadn't sold, they were small, and nearly all "one-time". One McMansion priced at $750k in May was finally reduced to $724.9k about two months ago (wow, 3% off, what a bargain), but still sits. Some of the price-reduced properties have shown up on the rental market, but of course at rental rates no one will pay. The owners are clearly in denial. I'm wondering how long it will be before they have to capitulate, and the prices become "unstuck".
jm - I have buddies in the Chicago area (property out in the St. Charles, Aurora, Elgin, Algonquin area). Same story - stalemate.
I grew up in the South Chicago burbs. The good (and bad) news there is that there is and never will be a bubble.
a follow-up to my earlier post regarding affordability in Sonoma,
Percentage of Sonoma County home buyers choosing exotic financing
(Interest Only, ARMs, Negative Amortizing Loans)
2003 36.8%
2004 59.4%
2005 69%
"American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage."
-Alan Greenspan, February 23, 2004
Lama wrote - "I'm curious, is this the same thing you hear in other parts of the country "there's no problem here, it's everyone else; we're different; all real estate is local, etc." "
Yup - exactly the same story up in Canada - my sister in law in Victoria BC said virtually the same thing just a few days ago "oh, I'm sure prices will drop in quite a few places, but Victoria is a really unique market, I don't think we'll see any big change here"
LOL.
"So I would guess that in your case - Massachusetts, that the market is more 'regional' than local... and more uniform overall... and more bubbly. I'd be shocked if you could draw a hundred mile radius and find 3:1 valuation differences for similar offerings"
Concord Massachusetts: 2.2M
Stow Massachusetts: 700k
The one in Stow is 1000 sqft bigger and 25 years younger. Withy a bigger lot.
Towns are about 10 miles center-to-center.
Also compare Weston to Waltham in MA. The towns touch.
Did more footwork on Mass MLS:
Weston has 76 single family houses on market at median of $1.75 million.
Waltham has 85 single family houses on market at median of $449 thousand.
The towns share a border.
Name,
You reminded me. There's others...
Framingham vs Sudbury
Malden vs Melrose
Lynn vs Swampcott
all share a border.
Lama, I live in the Boston area, and while there may not be a "bubble" in the sense of house-flipping by investors, there sure was a huge surge in housing prices in the past few years which has rendered the market unaffordable for most people.
From reading the Boston Globe, I get the feeling that there are far too many people around here who bought a house now because they were panicky and believed they would never be able to get into the market later. If that's not bubble mentality, I don't know what is. And for those people, all their assets are in their house. That's not healthy.
Housing prices here may not drop significantly if people can afford to stay in their houses. But I don't see how prices can rise any time soon, unless we all get huge raises and the stock market keeps doing well, or something. The basic unaffordability of housing in the Eastern MA seems unsustainable to me, whether there is/was a bubble or not.
I think Weston is relatively bubble-proof because of its hoity-toityness and unwillingness to let anyone but gazillionaires move in in the first place ... but the rest of those towns are probably vulnerable to a drop in housing prices.
My point was not anti-bubble. I was just addressing dryfly's faulty assumption that Mass real estate prices were more uniform.
Our supreme progressive oligarchy has sustained vast wealth imbalances for decades despite its platform of social equity. Must be some bug in the system - they'll get it worked out soon.
In general I'm a dryfly fan. But you have to live in Massachusetts to believe it.
I track my own stats from MLS, including relistings based on the pictures. The recent inventory drop was not balanced by equal sales. Expect an avalanch of familiar addresses back on MLS come March.
Name - that blows me away.
Are the homes really comparable - communities, quality, proximity to work?
'Cause out here in flyover (if you exclude lake frontage vs slum like differences) the major thing that differentiates price is 'commute'... move out and prices drop off pretty fast. But within say a 10 mile area... RE almost behaves like a commodity.
But not all 'commodities' are the same... there is lead vs lead - the same and lead vs gold - not the same.
Example I saw a 3 BR 'lakefront townhome' west of Mpls about 30 miles for $550K - outrageous considering 'lakefrontage' meant there was a channel cut to give this dump 'access' to the lake - and if access means you can paddle a canoe out.
That same townhome, same area, without 'access' is $200K max.
You take that same place w/ similar lake access and move out 75-100 miles and it drops to $200K max.
Lakefront to no-lakefront? Big change. But just moving the location 10 miles? Not much change unless there is more to the story.
The Concord-Stow offering is really 'the same' except for price?
Maybe we're a lot less 'lumpy' out here.
Weston and Waltham are very different animals in terms of population density and income.
Concord and Stow are less so. The added value for Concord is a Revolutionary war historical flair, and Henry David Thoreau's little wood hut.
The houses, the commute, the birds-eye view are mostly equivalent. The difference in town- provided services, school system, in- town retail and restaraunt amenities are rooted in the median income and property tax collection differential.
Same access to Rt 2, same lake/pond frontage. Town sewer vs septic, existing $70million school vs coming battle for funding.
Concord seems to be 3x richer today because the current denizens bid it up when it was admirably 2.5x richer. How much is a front row seat to the annual mock blunderbussing of Redcoats really worth?
dryfly,
I think what you experience up in Twin Cities and rural MN are what we experience in Houston. The farther out from the center of the city that you go, the longer the commute on a linear basis, but the usable area for building homes grows by a factor of 3 (or Pi?). Therefore, one spot really is as good as the next once you are far enough out, prices are low as older homes must compete with new mega-communities being slapped together by builders.
fuzzy dice - that sounds like my world... name's world, not so much - no 'redcoats'.
LOL. Live and learn here everyday.
Name,
I believe there is a very high premium on the Olde Concord snob appeal. It has always been there. I'd add that it is much closer than Stow to all the high-tech on the 128 beltway and downtown Boston.