bostonbubble.com

[admin]

A few weeks after the inventory of homes for sale in the Boston Metro area rose slightly above the level from one year earlier and proceeded to dance around that threshold through the Memorial Day holiday, the YOY change has lurched dramatically from being roughly flat to a 25.7% increase. Low and declining inventory has been a prominent attribute of Boston, and many other markets, since 2012. Anemic inventory combined with anomalously low interest rates has created a terrible environment for buyers with scant options to select from and the need to outbid the other prospective buyers who are most ambivalent and/or oblivious to risk.

Of these two pillars, the QE fueled mortgage rates{*} which sparked the frenzy disappeared in the second half of last year and only suffocated inventory remains. A year-over-year increase may signal the beginning of the end for this final pillar, not just because the change recently turned positive but because it fits within the continuation of a longer trend of a positive second derivative. The YOY inventory change had been around -30%, has been steadily increasing, and continues to increase. The latest change is a dramatic lurch continuing in that vein.

{*} Note that while the super low mortgage rates of 2012 have been undone, current rates are still extremely low by historical comparison. The above was not a suggestion that the risk of a mortgage rate rise has been realized as there is still a substantial upside to mortgage rates. It was merely an observation that the start of the frenzy coincided perfectly with a major drop in rates and that the rates have now returned to roughly where they were pre-frenzy.

- admin

[Richthofen]

This is great news for buyers. Open houses are still very full. There's a backlog of eligible, frustrated buyers in the pipeline. It will be interesting to see if inventory can keep up with those who have delayed buying in the past two years.

Once the backlog is cleared there's headwinds against both new inventory and new buyers. New inventory because with 10% or more of the cost of a home involved in selling, many are still too underwater to list their home. Buyers because so many are getting out of school with crushing student loans and poor job prospects.

[GUest Account]

I noticed that dramatic inventory increase but the median asking price still went up. There should be a lag from the increased supply putting pressure on prices. Does anyone know how long that is?

[Richthofen]

[admin]

When you adjust for inflation (as you should), prices were actually down in April 2014 versus April 2013, according to The Warren Group. That's the latest month with price info available at the moment.

- admin

[RealEstateCafe]

"Open houses are still very full," may be true of some markets, but not all. One client said listing agents actually said, "____________ has tipped from a seller's market to a buyer's market." My guess is that there are others, and more to come.

BACK TO THE FUTURE

In March 2014, RECafe wrote a blog post entitled:

Homebuying 101: Do seminars expose conflicts of interest, implications of speculative cycles?
http://bit.ly/RExpose101

Key excerpt:

Nobel-prize winning economist, Robert Shiller told CBNC that 2014 is beginning to look like 2005 or 2006, when housing prices rose too far, too fast.

http://bit.ly/2005REPlay (please share this link via social networks)

While that’s not the case everywhere, this excerpt from The Behavior of Home Buyers in Boom and Post-Boom Cycles, written twenty-five years ago by Shiller and fellow housing economist Chip Case, once again describes some submarkets in Greater Boston:

“…we see a market driven largely by expectations. People seem to form their expectations on the basis of past price movements rather than any knowledge of fundamentals. This increases the likelihood that price booms will persist as homebuyers in essence BECOME DESTABILIZING SPECULATORS!”

+ + +

We're compiling our Bidding War Scorecard for Cambridge: May 2014, and the pull quote above certainly fits Shiller's observation. However, as we've told clients, we're more troubled by the spillover effect to other cities and towns because those locations won't fair well in a flat or falling market. So, for buyers who are willing and able to time the market, the second half of 2014 may follow last year's trend:

Market snapshot confirms seasonal price reductions even in desirable towns
http://bit.ly/SavingsSnapshot
_________________
Bill Wendel
The Real Estate Cafe
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