bostonbubble.com

[nickbp]

Saw this article a few days ago,probably via occasional skimming of patrick.net links. While it's mostly talking about median sale prices around SF, I think the same effect could eventually apply here.

However, it's worth noting that there are C-S indices available which divide surveyed areas into low/mid/high price tiers, which could uncover this effect as it took place.

[GenXer]

Basically, it appears that the tone of the (mis)information coming from the press is that everything is fine now, lets get back to buying houses. I'm sure more than one person cursed themselves for not jumping in earlier to buy something, because now the prices will surely rise again. Well, not so fast. First, we do not know how the unemployment will change in the next couple of years. We do not know what the interest rates will do (i.e. when they'll start going up). We don't know how the state governments will do - will they start laying off people by the hundreds or will they raise taxes? All of this will play a major role. Also, government is about to increase taxes and impose regulations that will amount to huge tax increases. So when you thought everything was 'stable', we are present at the creation of a new crisis, this one at the hands of the government. But as I said before, this could take years to unravel. Its not known how or why, but I think it will become clear with time that prices will continue dropping, and where the bottom will be - nobody knows. The only people who will do well in this environment are the buyers who will wait it out - the sellers who try to 'wait it out' will only burn through all of their savings, and they'll have to sell anyway at the end if their expenses and taxes will increase (which they will, guaranteed). It will be MUCH more expensive to own property in the future (e.g. city taxes going up - Newton for example just hiked the water tax). Over-rides are just around the corner. There is no evidence that spending is being cut (esp. in MA). Somebody's got to pay for it, and it will be us, the residents and homeowners.

[nickbp]

I just realized I should probably give a summary of what the article is talking about:

Cheap houses are selling now, driving down the median sale price. Expensive houses could start selling soon, causing an uptick in median sale price. This effect could create the appearance of a bottom in median sale prices when the expensive houses start selling, even though the market is still heading downwards within each price bracket.

I think this could even apply to $/sqft.

[JCK]

I'm watching the sales numbers, more than median prices.

Right now, sales numbers are down quite a bit, even in the "immune" towns.

Don't worry about median prices. Look at the Case-Shiller index, which is based on same house resales and is not subject to the median price bias that you're describing.

When employment stabilizes and sales start to increase, that is your sign to "buy now."

Until then, if you have a steady job, enough savings, and find a good deal, you might want to move, as there is less competition out there. But I don't see any factual basis for calling the bottom just yet.

Good luck.

[john p]

It makes sense when you think of it. During bad times, people with a small emergency fund feel the pain first. I describe it sort of as thermodynamics, if you are insulated you feel less of the heat. I see price drops like deformation due to melting, the rich tend to have more insulation around their columns and beams so they can remain upright longer.

With the major drop in the stock market, people who had bought 2nd homes and who were living off the income of these investments have to scale back. You're now seeing a lot of these second homes on the market as well as those that have had their investment incomes drop, or simply those that had overextended or even a dual income family that wants mom to now stay at home.

Because there were fewer transactions, the few transactions that did occur, mostly based on hardship, were the statistics these steep declines. To some degree it was overstated. However, the home prices were well beyond the natural price to income levels in my view so this gravity is starting to pull. NOW, that there is more consistency of price drops among the different price structure strata I think we'll see more velocity in home sales because now, people that don't have to sell will enter the market because they can upsize or downsize and the steps are more relative to one another.

The things I'm trying to balance in my mind using a historical benchmark of say the price drops in the early 90's is that on the one hand, we have the unemployment levels of that period (actually more now) but we didn't have this Stimulus. This Stimulus is going to keep us from feeling the pain and we will continue with policies that put us deeper and deeper in the red. For example, we pay expensive "prevailing wages" for public contracts, wages that we can not afford. We typically pay for these expensive projects with debt and Massachusetts has the highest debt per capita of any State. So the natural economic limits are not capping wages and the wealth effect of this overcompensation compounds the problem. This is why I think it could be worse, because what needs to be corrected is worse.

Right now, people are still comfortable in the delusion and government is feeding the delusions with the Stimulus, so unless people get a sense that they are going to have to taste a dose of reality, we still may be operating at unsustainable levels.

In the end it is about forecasting your future. In the immediate, we do our monthly financial hurdle analysis and we use the rules of thumb to set the balance. The forecasting comes into play as do we think we'll get 5-7% salary bumps every year, in which case we will overextend a little bit to get the house we want, or, are we nervous about if we'll even have a job next year? I think the fear that this drop has put in will break two ways, to some it will make them more conservative and to others, if we get a bottom or bounce, they will say, well it did drop but it came right back like it always does.

[WestCoastXPlant]

[JCK]

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[Teavo]