bostonbubble.com

[Booba]

Optimistic people that think the bottom is near just forget one little thing: America in HUGE depth. HUGE!
Saving rate in 2007 was -3% (yes, MINUS!). Vast majority of consumers live from paycheck to paychek and have a lot of debts.
They managed to cover their expenses by borrowing, but credit card companies are getting less and less liberal. Home equity piggibanks are also closed.
Soaring gas prices, and gas-grizzling OPEC-friendly SUVs popularity just started hitting consumers.
Dollar is falling, and commodity prices are going up. It clearly means one thing-inflation that, actually, just started.
We have "hosuing slump" alreasdy, and pricce fell by 12% from year ago, just like in 1990th.
The HUGE difference, though, is the "housing slump" in 1990th was cased by recession.
But the country has not even in recession yet, but prices already fell!
And the last but not least: housing affordability.
Median home in MA costs $304,000. Median annula household in MA is aroung 55K, i.e. an averdage home costs almost SIX annual incomes, way above recommended 2.5-3 times.
Therefore, prices in MA are still unaffordable and disconnected from local income level.
You can trick economy laws for a while by giving exotic credits to everybody, but sooner or later they will prevail.
So, who is going to buy overpriced houses?
Consumers that are stretching more and more? Consumers that cannot get easy credit anymore? Consumers that loosing their jobs and income? Consumers that must pay more and more for gas and food every month?

Lower interest rate? So what? Lenders are scaried by death to lend money to American consumers becuase they alredy have huge debts!
Bedised low interest rate automatically means falling dollar and soaring food and gas prices.

The guys that predict that we will hit the bottom soon, or everything will be just fine by the end of the year (why by the end of the year???) ususally don't bother with supporting their point. Yeah, Santa will magically bring everything in order by the end of the year!

[Booba]

Sorry, it supposed to be in Predictions thread!

[john p]

Think about what the interest rate was when they were talking 3-4 times household income. In the end, it is about what your mortgage payment is. As interest rates drop, people can afford more principal, or house price.

In the end, again, there is on one side of the equation, available housing stock and on the other side of the equation, buyers interested in that housing stock. If there is a nice house or condo available and somebody is willing to pay for it, it will sell. The right price for the right quality will sell. Some sellers get this and these are the sellers that find buyers.

Take a look at Kim Blanton's latest article, some towns are going up and others going down. It is not cut and dry Dover and Sherborn have the same high school and are neighbors; one went up, one went down.

http://www.boston.com/realestate/specials/07_08_march_ytd_sales_single/

[StallionMang]

>> Dover and Sherborn have the same high school and are neighbors; one went up, one went down.

Pretty sparse data though. Median home sales on a set of 7 leaves a lot of room for chance.

Sales in Gill are up 300% (4 sales->1), Middlefield down 100%

Seeing the raw data is very useful though, thx for link.

[john p]

Yes, a small amount of sales activity can skew the numbers, which is why I'm saying that you need to look when there is a small amount of sales activity. Fewer lines in the water in a pond means better opportunity for the fisherman.

[FoxTelevision]

Why are you so negative ???

You must be a democrat

George Bush told me the economy is fine ,
and the War is going great

Why wouldnt I believe him
.
.
.

[Paperboy]

As a leibertarian I do not want to see the government intervene in this mess. The market will sort itself out. Price the house right it will sell. You owe more than it is worth? Let the bank foreclose and take your lumps.

The prices are still way too high even with the 10% correction since last year. The $400K houses need to be closer to $300K.

If you bought a house in the past two years, you probably overpaid even if you got a good deal at the time. If you stay long enough you may recoup your losses, but that remains to be seen. No matter how much you tell yourself otherwise you made a bad decision.

The writing was on the wall 3 years ago and I sold. I dropped the price to sell it but I still did OK, others in my neighborhood are still holding the bag.

This mess will get worse before it gets better. Can you say 4 bedroom split in the westernsuburbs for $250K?

[john p]

A $400k house today, Spring 2008 will sell for $300k? When? Why would someone sell for that type of loss?

Keep in mind, new buyers are absolutely screwed economically. People before you who bought before the bubble, who are the majority of homeowners are sitting pretty. Most have refinanced at a low rate with the originally low price to begin with. Sure many have refinanced and are upside down because they have no financical discipline or fell onto some hard times, but most homeowners are not carrying the debt that first time buyers have with student loans etc. Think of it like a cloud cover, most first time buyers are under the clouds and are being rained on, and many of the existing homeowners are above the clouds and are getting the sun. To many, their mortgage payments are less than a first time buyer's rent.

[Paperboy]

If somebody bought the house in 1990 for $130K then selling it for $300K is not a loss at all. Just because its priced at $400K does not mean it is worth $400K.

Home owners that resisted the temptation of refinancing and taking out equity could easily sell the house for $300K and make a tidy profit. Sure it may have been worth $450 at one point, but that time has passed. So it will take a few of these type of sellers (baby boomers?) to really push the price of homes over the cliff.

Baby boomer wants to move south, see the writing on the wall that the market wont be turning around anytime soon. THey have the ability to sell and get out with a profit. If they get greedy, and still want to go south they wont sell the house. The longer they wait to sell the less money they are going to make and the more winters they have to endure.

I see your point on recent buyers not wanting to lose $100K. They would just opt for walking away and letting the bank hold the bag and eventually sell at auction.

[john p]

The words you're saying make perfect sense, I just think that the numbers need to be dialed back a tad i.e. I don't see many houses that went for $130k in 1990, now selling for $400k today. Also, keep in mind that that was almost 18 years ago.

I think part of the key to this is how many married couples plan to have two earners? If we're talking 1 earner, you're right, $300k will be the price point. With two earners, $400k is closer to reach.

[samz]

[Paperboy]

Even if that house was $160K in 1990 the owners would still make a profit. Although they will certainly have sellers remorse if they let it go for $300K, they still made money on it.

Other issues to consider, the economy which is looking shaky and gas and food prices are biting into the spending power for most potential buyers.

All of these combined creates the perfect storm for home prices to go down much more than anyone cares to believe.

I hope I am wrong, but I do not think I am.

[Barryshaft]

John P.... Thank you for all your input as you are one of the posters that I always read.

That being said, it sounds as though you have some more skin in the game as of late as you seem to be very active in debating anyone that thinks this decline is still at the beginning.

Interest rates, inflation, etc are all valid points but really do not represent this market fully. There are many macro economic factors that must be considered as well as the point you continue to point out. 90's housing slump was due to recession... do you believe we are not currently headed into one? what is the percentage of households in any community that can afford even the house they live in (if they were buying it today based on historical income /mortgage ratios)

As for the final analysis on what people bought homes for vs. what they are selling for. Nearly every house i look at, I look at the last sales price. Houses that sold from 97-2000 are nearly always at a 80-100% appreciation and often more. Perhaps the houses selling are not there-- but the new listing sure are.

Just a few examples found on >2days on redfin
medfield
SQ.FT.: 3,032 Lot Size: 0.96 a
$/SQ.FT.: $256 MLS#: 70751473
Status: Unknown
Last Sale: $395,000 (08/25/1995)
asking: 775,000

Natick
$/SQ.FT.: $289 MLS#: 70751886
Status: Unknown
Last Sale: $632,500 (02/25/2000)
asking 999,000

Burlington
SQ.FT.: 1,666 Lot Size: 10,700 sf
$/SQ.FT.: $255 MLS#: 70727955
Status: Unknown
Last Sale: $225,000 (09/01/2000)
Asking 425,000

[CJ]

[Paperboy]

One issue that will also impact the prices is the Herd mentality that seems to hit when things go bad. Perhaps this post would be better suited for the psychology section but when prices start to drop everyone starts looking over their shoulder and wondering what is going to happen next.

Baby boomer empty nester couple want to get out of their oversized home, their friends sold recently for less than they thought they would get, this puts the fear of god into the the couple inducing them to put their house on the market for less than market value.

People seem to share their stories of realestate transactions. During the run up people loved to brag about their prowess in the real estate market and how much they made. Now the same will happen on the way down causing that herd mentality to take hold of the potential sellers. If its worth $400K today it will be worth $380 in 3 months. Better list it for $380 now to stay ahead of the curve.

Regarding the 10% drop in 1990, the run up in values during the 80's was nothing compared to the runup in the 90's and 2000's. THis cliff is much bigger and the fall will be greater for that reason.