‘Buyers Know If A Price Is Fair’ In Massachusetts
The Patriot Ledger has this report on Massachusetts. “House ‘For Sale’ signs sprouted like goldenrod last summer along the highways and byways of the South Shore. But there seemed to be a drought of buyers for all those properties that only a few months earlier were selling overnight at record prices. What was going on? Gradually, concern was turning to panic. Was the dreaded real estate bubble beginning to burst in towns from Milton to Plymouth?”
“This story is still shaking out. But it would seem that the real estate market in our corner of the world is no longer as good as it was, especially those who are stuck with two houses and, therefore, two mortgages.”
“Sellers are clinging to the memory of huge appreciation in house values, while buyers are interpreting reports of a slowing market as an opportunity to get the bargain of a lifetime. The times they are a-changing. Just ask the agents at the real estate office in Duxbury, who, like their colleagues in other South Shore towns, are being forced to talk sellers off the roofs of their expectations and encourage buyers not to count on making a killing.”
“According to agents Diane Cole, Faith DiBone and Evan Sabran, South Shore houses are an incredible value right now. Six years ago, at the height of the tech boom, many people were taking their profits and investing them in real estate. ‘You didn’t even have to market your house,’ says Sabran. ‘That market lasted for so many years some sellers think it still exists,’ Sabran said.”
“Cole agreed. ‘Sellers tend to listen to rumors about what’s going on in the market.’ According to Sabran, ‘Sellers usually are three to six months behind the curve.”Sellers got caught short,’ DiBone confirmed. ‘The result is they get angry with their agents. I lost three listings because of that, and those houses are still on the market.’”
“So are some of the houses that buyer Liane Bromberg looked at early in her seven-month odyssey to find a home in Hingham or Weymouth. Bromberg says today’s market is strikingly different than the one three years ago when she bought her Hanover home. Today she wonders if she might have overpaid for the Hanover house.”
“There’s no danger of that happening now. Bromberg says she is looking seriously, but not feverishly. She gets daily e-mails from her broker, and most weekends she goes to open houses. But rather than feeling pressured, she’s ‘having a good time.’”
“A recent tour of the housing market in Hingham revealed that there were several $1 million-plus houses that had been on the market for at least a year. Still, owners not only were showing little sign of lowering their prices, they already had purchased new homes.” “Creative financing has made it possible for some owners to carry two mortgages and not be forced to sell at a sacrifice, says Diane Cole. That’s one of the reasons for a current spike in ‘inventory,’ Realtor-speak for the number of houses on the market.”
“Sellers also have to start thinking differently about pricing. No longer is it productive for the seller to price a home considerably over what he or she expects to get in order to allow for wiggle room, Sabran says. He recommends to his clients that they state ‘a first and final offer. Don’t worry about leaving room for negotiation,’ he said. ‘Buyers know if a price is fair.’”
“Fair is the operative word. All the Realtors interviewed for this article agreed that if a house is priced fairly, for both parties, it will sell.”
Yeah, that’s one of the reasons for the spike in inventory - sellers who aren’t forced to sell at a sacrifice. Realtor doublespeak for sellers who think they are entitled to ridiculous profits and refuse to reduce the price of their homes. I hope these folks end up with nothing due to their stupidity and arrogance.
NOBODY does this in a down market. These sellers are just begging to get slaughtered. In a down market, you enter escrow on your present home, and then go offer on another one. This second strategy will soon become the norm.
In a down market, sellers are more than happy to accept an offer that is contingent on the successful close of the buyer’s present home (as long as it is already in escrow).
It’s really a mind game. Buyers aren’t forced to buy at a sacrifice either. On last night’s Oprah show, “join the debt diet”, 2 out of the 3 families on her show overextended and bought homes they can’t really afford. Too bad the experts like David Bach (I know he’s a mortgage brokers or realtors’ PR person from another news someone posted here) didn’t tell them the truth to sell and rent. It would solve at least 1/2 of their problems right away.
I watched that one, too. I’m sure those 2 families are a prime example of the over-extended, novice specuvestors as well. They just want what they want, when the want it. It doesn’t matter what anyone says…they don’t hear logic at all. And then “all of a sudden” they are under water and they don’t know how they got there…that is, until someone shines the bright light on them.
Selling and renting would solve some of the cash flow problems, but it would take a lot of time. As we have noticed, nothing is moving fast on the market now so the houses would sit while they worked on other parts of their budget. Once the houses sold, however, their housing expenses would drop considerably.
It’s amazing the things that people do to themselves.
BayQT~
The very same paragraph highlighted by ‘rudekarl’ jumped out at me.
If someone cashed out a few hundred thousand with a HELOC, there’s a good chance that they can make the PITI payments for many, many more years - in fact for as long as the typical real estate boom-bust cycle lasts. Maybe many of these speculators won’t be forced to dump when their ARMs reset.
Maybe this Ponzi scheme will last for many decades instead of a few years. If the bust happens many, many years from now there will be a good number of prudent savers whose money may be eaten away by inflation while property prices keep rising. Such folks will be SOL for the span of their working lives.
I don’t really understand how the bears are so sure that this will all collapse soon, even in the most bubbly areas like California. Has there been an analgous period? During the runup to the Great Depression, was such easy credit available? If so, what its genesis?
The low bond yields increased investors tolerance for risk at higher yields in the last decade, making the easy credit available. How analogous is that to the Roaring twenties?
Which planet are you on? It’s collapsing in front of us. Are you blind?
Well said Lingus!
We’ve already passed that stage arguing the market will crash last year. We’re now watching how our predictions come true. It’s fun reading troll’s laughable claims. No longer do we need to waste time debunking those any more.
I’ve read the articles than Ben posts. These are very, very small drops compared to the gains of the last few years. Even a bull market has small dips.
This may look prices are crashing to someone who has been anticipating it for years. I’m not so sure it appears the same to first time buyers with little knowledge of real estate history - the same folks buying with IOs, ARMs, Neg Ams.
I believe that this bubble will only stop growing when the lenders lose their appetite for investing in real estate backed financial instruments due to high default rates. At that point they will update their models to reflect the much higher risk to reward ratios that you can see intuitively. Their models currently use historic numbers - with much lower risk to reward ratios.
By ‘lenders’, I don’t mean the banks who are just intermediaries today - I mean the investors who the end holders of these instruments.
You can’t possibly be over 35. If you were, you’d remember the early 90s and what happened then. Go to the archives of some of the large newspapers, start reading, and then stuff a sock in it, okay?
Nahin,
All the things you point to that could sustain the bubble further have allready passed.
HELOC’s-Done deals, virtually anyone that bought 00′-03′ has allready refied and HELOCed. That debt is now just starting to chock them.
Borrow more to wheather bubble-Done deal, the lenders (purchasers of MBS are allready getting burned) are now requiring around 8.5% on B paper loans. They will not loan beyond the appraisal ammount (which is flat to falling) and you assume there is some equity for them to borrow, they allready have. There will be no further financing available to push off the principle reduction requirements.
History??? Need I make a clearer observation than 89′-95′. I sold property in the mid 90’s for $60-80k that was lost to the banks in 89′ on loans of $170k. The statistical numbers lie for various reasons. If you were to observe actual sales of the same homes in 89′ and then again in the mid 90’s you would see at least 50% nominal (not counting inflation?) price drops in my area of nor-cal, Stockton.
Again, all of your reasons that the bubble could continue are allready spent out. The most important item you left out is buyre sentiment, it has turned south and will not be bullish for many years. As long as you have bullish sentiment and loose money the ponzi scheme can continue, sell one buy three.. When the buyers stand pat the entire scheme collapses under its own weight.
The most important item you left out is buyre sentiment,
exactly, it does not matter how much prices have gone down so far, or how much inventories have risen so far. what matters is the consequences of the psychological change that has occured so far. Past examples demonstrate psychological momentum on the downside. The ponzi scheme needs everything to work at the same time: lenders, hedge funds, economists, NAR, central banks, sellers, buyers, media. Everyone. The coordination among all of those people over the past few years has been a “convenient indirect collaboration”, not a well-organized bullish front. When the market suffers what has taken place in recent weeks, such convenient relationships deteriorate. Realtors go their own way, Lenders go their own way, the FED goes its own way. etc etc. This chaos, in turn, leads to total collapse.
Lingus, Goleta, TxChick57, Rich:
I am not claiming that there is no bubble, nor that it will not deflate. I’m just not as certain as all of you that we’re past the peak.
Bernanke doesn’t seem to believe there will be a crash. See:
http://news.ft.com/cms/s/1db0b9bc-9ef5-11da-ba48-0000779e2340.html
Robert Shiller, the Yale economist who bears love to quote for his predictions about the real estate bubble, won’t predict that the peak has been reached either. See:
http://news.ft.com/cms/s/b343303a-9eb0-11da-ba48-0000779e2340.html
So, how can you be so sure?
Yeah right. [rolleyes] Bernanke intentionally cause a run on housing? Get real.
God…. How old are you?
If someone cashed out a few hundred thousand with a HELOC, there’s a good chance that they can make the PITI payments for many, many more years - in fact for as long as the typical real estate boom-bust cycle lasts. Maybe many of these speculators won’t be forced to dump when their ARMs reset.
Optimistic theory.
The problem is that most of the people who cashed out didn’t put it in the bank to protect themselves from future market fluctuations. Instead, they bought SUVs, cars, boats, furniture, vacations, granite countertops, etc.
It’s always been the case that as the price falls, some people will take their for sale home off the market (that’s simply the standard upward sloping Supply curve).
I guess your real question is, has “easy credit” flattened the slope of the Supply curve, such that as demand from buyers drops, the price won’t really drop too much? I don’t think it has. With easy credit, more people have 100% financed, which means that they are HEAVILY leveraged. When prices fall, they will quickly find themselves with negative equity, and they will be smart to sell as soon as possible. Just as leverage maginifies gains when prices go up, so will leverage magnify loses when prices drop. And didn’t we learn that about 43% of home buyers last year put zero money down?
I think that real action will be on the demand side. Since this is likely a housing price bubble, once buyers come to believe that house prices will fall, then they will stop buying. This huge drop in demand will only encourage leveraged owners to sell, and prices will fall.
“If someone cashed out a few hundred thousand with a HELOC, there’s a good chance that they can make the PITI payments for many, many more years - in fact for as long as the typical real estate boom-bust cycle lasts. Maybe many of these speculators won’t be forced to dump when their ARMs reset.”
Most Americans don’t cash out and put the money in the bank; they spend it on other high ticket items, including new cars and college tuition for the kids. And if they’ve upsized to a new overpriced house, they have to contend with property taxes often many times higher than what theyre used to.
I doubt more than tiny fraction of people can hold out as your suggest. But, we should know pretty soon. I’m just wondering if “Trump Tower” will be cancelled in Tampa. Its estimated completion date, 2009, should find its $1-5,000,000 units worth only about a quarter as much. But, the taxes will still be based on the contracted 2005 prices. For a $5,000,000 million condo, we’re talking $125,000 a year. Can you imagine paying such property taxes on something whose value has dropped below $1,000,000?
Hillsborough County, and Tampa have encouraged this absurdity, ignoring decades of building codes and setback requirements, and giving developers anything they want, because it enriches the government, and thus government employees (salaries and pension plans). Which, in turn, makes me wonder what will happen with the flood of sales taxes and property taxes is drastically reduced.
Sorry. The last sentence should say “when,” not “with.”
Those with emotional maturity will be rewarded by their patience.
The patience to stand on the sidelines and watch this drama playout.
The maturity to not get caught up in the insanity of those around you.
A few years goes by very quickly and the landscape will look very different then.
Forget about buying real estate, find other interests to fill your time( keep building those savings). Before you know it a few years will go by. Sellers will be desparate for your money. Buyers allways have the upper hand( they have the money and the seller want’s the money), buyers just forget this once and awhile.
JMO
Good Advice
Very good advice,
I was interested to see a graph regarding home appreciation in my area, there seems to be no ceiling to appreciation rates. There is a definite floor (between -5% to 5%), I believe this represents the smart money. The RE simply gets to valuable on a cash flow basis. At the lowest levels, if you can obtain financing (not easy) the properties will break even or better with no out of pocket money. This happens long before joe six pack realizes it is cheaper to own than rent. Once he does another bubble rocket fuse is ignited.
http://www.housedata.info/CA/Stockton/
“According to agents Diane Cole, Faith DiBone and Evan Sabran, South Shore houses are an incredible value right now.
Oh yea…incredible value I’m sure. This reminds me of a recent listing here (in los angeles/sfv) where a 3 bedroom 2 bath house was listed at 799k and all the agents were all congratulating each other on the “realistic” listing price and expecting “multiple offers” in the first weekend. After all, last July it would have snatched 850k no problem. Guess what? No multiple offers, no sale (three weeks later). I honestly can’t tell if it’s their stupidity or self generated propaganda.
Are you seeing what I am seeing here in the SFV, big reductions & slow sales? I am sensing some serious anxiousness among some sellers to get their homes sold before things head south. But still lots of vastly overpriced listings that just sit on the market.
Yes and no. I’m seeing more inventory added every week in the SFV. As far as big reductions are concerned…no. For example, I know of a local spec house that was originally listed for $1.4 million. The owners have reduced in $25k increments….a drop in the bucket compared to their overpriced list in my opinion. Not enough to draw offers. I’m seeing similar nominal reductions and no sales all over the sfv.
“A recent tour of the housing market in Hingham revealed that there were several $1 million-plus houses that had been on the market for at least a year. Still, owners not only were showing little sign of lowering their prices, they already had purchased new homes.”
************************************************************************************************************************
Let’s see how long they can hold out at prices above current market. Not much longer, I would say. Two mortgages kinda wear you down.
i’ve read this article before, it was in the spring of 1989. these people carrying two homes on bridge loans in a declining market will learn a valuable and painful lesson about reverse leverage.
This OT for this thread, but I would appreciate any comments from fellow bloggers.
I live in semi-rural western Washington state. Most sales here are to retirees and equity nomands. The locals can’t afford the prices. I sold at the top of the bubble last summer for 480K minus costs. This was a 50+% apprecciation since the bubble got going here in 2001 & normal for the area. We did not have the doubles + as the hot metro areas did.
Right now the listing books are growing and things are selling only with accepting offers but, there have been no big prices breaks. Spring & Summer will bail us out, the normal RE stuff.
I rented a nice Duplex for 1K per month & just got an email from my owner who happens to be a friend saying he is going to sell the place either to me this spring for 310K or this summer toward the end of my one year lease for 319K FSBO. He paid 273K for it exactly one year ago. He is a good guy & it was very fair of him to let me know his plans now.
Currently, rentals like mine are going for 1100$ if I can find one. I really don’t want to buy now at what I feel is near the top. My wife does not want to move maybe twice as we plan to buy next year, but will go along with it if I explain well. We are retired & have the cash from the house sale to buy………..it just does not feel right. Thanks for any thoughts. Chris
Don’t buy it and ask you friend to sign a long term lease with an option with you. If he turns over all these terms to the buyer he should be bound by them (should be, in CA he would).
Only $2,200 in rents for $310k, I wouldn’t touch it with a 10′ pole. The most I would pay for a rental, and the most any real landlord would, is $264k (10 times rents) maybe a bit more with the cheap prevailing rates.
My main point is that the buyer will most likely not have a problem with keeping you as a tennant. Just sit tight and see how things unfold.
Sincerely,
Rich
Chris,
Not an option to buy, but rather to extend your lease at your request.
Rich
Thanks for the comment Rich. I have a lease until August. He will put it on the market I expect in June as he really wants to sell. I will wait him out & see what happens. If the market does as we all expect on this blog he will not get his 310k for the place. TWT.
‘‘Some buyers are waiting for the bottom to fall out, but it’s not going to happen,’’ said Petersen Bell. ‘‘This is a correction, not the bursting of a bubble.’’
Man, that quote could be lifted directly from a stockbroker during the nasdaq crash…
I have been tracking the San Diego County inventory on ziprealty for a few days:
2/9/06 16,464 homes for sale (all types)
2/16/06 16,607
2/19/06 16,907
443 added to inventory in 10 days, not including FSBO like my neighbor across the street. There are 3 houses for sale on my street, 2 of them have been on the market about 6 months, they have reduced prices just a little.
‘‘Some buyers are waiting for the bottom to fall out, but it’s not going to happen,’’ said Petersen Bell. ‘‘This is a correction, not the bursting of a bubble.’’
For this belief the only cure is ECON 101 and maybe a repeat to lift his grade point average!