A Housing Bubble ‘Sea Change’ In Massachusetts
The Boston Globe reports on the changes in that housing market. “According to data from New England’s largest real estate listing service, the number of single-family homes up for sale in the Plymouth-South Shore region recently was roughly double what was available at this time last year. Yet this week the Massachusetts Association of Realtors announced that sales of detached single-family homes fell 8.1 percent in the fourth quarter. It was the largest annual quarterly decline in home sales in nearly three years.”
“That’s quite a sea change for buyers, who now have a wider selection of houses from which to choose and more bargaining power. For sellers, it’s time for patience and possible loss because houses may sit on the market much longer than they had hoped.”
“A total of 2,131 single-family homes were listed for sale in the Plymouth-South Shore region, which includes 18 towns, on Jan. 31; up 49 percent from 1,429 properties at the same time last year. Real estate specialists say the relative glut of homes for sale this year indicates a balancing of the market.”
“Debra Kirby and her husband, Alan Fujii, have two houses. One is a in Hingham Center; the other is a Victorian with breathtaking ocean views in Hull. But they still carry the mortgage for the house in Hull because, even though the Victorian is the kind of property that can easily seduce, Kirby and Fujii are having a tough time unloading it.”
“Kirby and Fujii bought their new home for $595,000, $105,000 less than the asking price, a discount that would have been unheard of a year ago. At the same time, Kirby said she is surprised it has taken this long to sell the Victorian in Hull, which the couple put on the market in July. ‘I thought it would take two or three months, based on what the market had been like.’”
“Kirby pulled out a booklet with photos of the Victorian. On one page, the asking price of $997,000 had been scratched out and $967,000 written beneath it. The house initially was listed for $1.75 million. Now, the couple will take $949,000, lopping almost 46 percent off the original price. What a difference a few months make.”
“‘Sellers can’t expect a huge increase over the last sale on the street,’ George Cooper, regional vice president of the Massachusetts Association of Realtors said, ‘and buyers can expect prices are not going to jump dramatically.’”
“That’s stressful news for Kirby and Fujii, who are paying two mortgages and maintaining two houses. Kirby is trying not to let the situation get to her. ‘I can’t conjure up a buyer,’ she said. ‘You have to have confidence in your realtor, and that they know how to deal with the market, whatever it may be.’”
Sold# Sold# Pct. Median Median Pct.
Jan-05 Jan-06 Chng. Jan-05 Jan-06 Chng.
Marin 309 210 -32.0% $740K $741K 0.1%
Napa 164 103 -37.2% $542K $596K 10.0%
San Francisco 423 335 -20.8% $684K $722K 5.6%
San Mateo 550 450 -18.2% $693K $726K 4.8%
Santa Clara 1,862 1,486 -20.2% $565K $648K 14.7%
Solano 754 504 -33.2% $399K $490K 22.8%
Sonoma 550 460 -16.4% $482K $562K 16.6%
Bay Area 7,509 6,004 -20.0% $534K $607K 13.7%
Source: DataQuick Information Systems
These people have at least one thing to be thankful for: being stupid is not illegal!
but it should be painful don’t you think?
It is really too bad that being stupid isn’t painful.
2006 will be quite a year on Ben’s blog…
2005 on the blog went from “it’s never going to stop? to “it’s peaking.” it seemed like the trasition started in the summer, when it looked like the boom would go on forever, to the fall when it looked like it was slowing down.
Once this starts to really unwind, probably this spring, this will be one of the most visited blogs I know of. Existing homeowners must already find it when they google “housing bubble”…but most probably ignored it during 2005.
if you google housing crash you can get 1200+ articles, mostly from australia and uk, but i can remember hardly any in the spring when i first found ben’s blog. maybe he’s going to need to create a crash site this year.
“Kirby pulled out a booklet with photos of the Victorian. On one page, the asking price of $997,000 had been scratched out and $967,000 written beneath it. The house initially was listed for $1.75 million. Now, the couple will take $949,000, lopping almost 46 percent off the original price. What a difference a few months make.”
I hope the owners in SoCal are paying attention to these stories from the NE. The markets in SoCal will soon have similar stories.
Hello? Hello? Anybody home? Hah? Think McFly! Think!
I wonder if the house is worth only 450,000 and that by listing it so ridiculously high and then reducing the price by 46% thay attract sucker buyers. Good ploy - if it works. And I suspect it will.
It might be this home
But that Victorian still seems overpriced compared to this one
“‘Sellers can’t expect a huge increase over the last sale on the street,’ George Cooper, regional vice president of the Massachusetts Association of Realtors said, ‘and buyers can expect prices are not going to jump dramatically.’”
so let me see if i got this straight. a house drops in asking price by 46%, doesn’t sell yet, and we’re told that sellers won’t be getting such a huge price increase over their neighbor who sold last year. the good news is buyers can expect smaller price increases as well.
what do you get when you throw in doubled inventory, reduced sales volume and a 46% drop in asking price into the proverbial NAR spin machine?
answer: single digit appreciation
Don’t forget all the bad press. When you combine all the reasons why one shouldn’t buy with the fact that the news is finally printing stories about it, these folks will probably have to fly someone in from an isolated island to buy their Victorian. Thanks for playing, we have some nice parting gifts for you Debra and Alan.
No sympathy. These losers all think they’re bulletproof. Wait until you start seeing the ads on Craigslist that say, “Stop Throwing Your Money Away BUYING” Then we’ll know it’s safe.
Our partings gifts for Debra and Alan are a bankruptcy, a 450 FICO score, and an imputed income 1099 for $640,000 from their lender.
450 FICO - some bank will still give them a no doc I/O Option ARM for $750,000 for the next purchase. I love thinking how we’re all going to pay to bail out these greedy POS. I don’t own a gun . . . yet.
I’ve three condos in my shouting distance up for sale this week.
All 3 BR/2 BA — 1300 sq ft
This is in ventura county- newbury park- a desirable neighbourhood.
1) 499 2) 490 3) 484.5
I plan to visit these homes today, if they have an open house. Is OK to ask the purchase price for the current owner.
my condo (I rent —4BR/ 2BA) was bought by a REagent as investment for 466K. it same size 1300 sq ft. i pay 1850. HOA is 280 paid by the owner. She is already in the hole -my rent does not cover the mortgage(depends down payment ofcourse!).
with sale prize-in early spring- 6% commission– no appreciation either.
highest price in this development was 495 in dec as per domania for a similar condo
My lease is fixed till Jun 2007. Thank god. I ‘ll have a ring side view–one close home, another here on the blog!
70% of American households are living paycheck to paycheck. Most of them have their credit cards maxed out, and home owners in them have already taken advantage of past 10 years’ RE appreciation and low interest rates to consolidate their credit card debts with HELOC many times over.
That source of free or cheap HELOC is drying up. What now? Most of those 70% of households will be forced to sell or foreclose the homes they own. Most boomers are also going to dump their homes to pay for their medical bills. So I come to a conclusion that 1/2 to 2/3 of existing homes will dumped to the markets out of desperation in the next 20 years. That combined with 10-year high of the number of new homes being built means the correction is going to be unprecedented.
The most over-priced markets like Boston will likely fall even harder than Tokyo did in the past 15 years. Most homes in Tokyo have lost 80% and some of them over 90% from their peaks. So I won’t be surprised to see some homes in Boston lose 90%.
Hey Goleta,
You might be right on alot of this… I realtor acquaintance of mine told me that 86 % of ALL loans taken on Santa Barbara City (west side + east side) homes for the past 4 years… have been either A.R.M. or exotic!! Can you imagine!
Only 14 % of the homes were purchased with either CASH or Conventional 30 yr. FIXED financing.
As RICH as we think Santa Barbara is… I believe there is a day of reckoning, and it’s not far off.
Either these folks were brilliant to get in with teaser rates- milked them for 2 years and sold for a tidy profit (or REFI’d a primary residence to a conventional loan)
OR, there may be some financial hurt happening as the next few years UNRAVEL.
The 1.75 million price tag is hard to take seriously. Was it a fishing price? I could put my home on the market for 4 million and reduce it to 400,000 and get my name in the newspaper if you are just looking for the largest drop in home prices by a lazy reporter.
Odds are it was a million dollar home that was priced over the top during the summer.
Went to an open house today. It has been open for an hour when I arrived, but apparently I am the first who showd up. I asked the agent how busy is the market. She said it’s been quite active but today is quiet because this is a long weekend and ppl are gone vacationing. I find this quite lame excuse. On my way home I passed a few for sale houses I visited last month. None is sold. All of them are 40-50 years old houses with nothing special, but all want 400K.
This is in Barrington, RI
What does everyone here think in terms of Price-to-Rent Ratios?
With the exception of “trophy”-type properties (think exclusive ski condos in Aspen, beachfront houses in Hawaii, etc), I have alwayd thought that the sales price of houses/condos should ebb and flow between 120 months and 180 months of rent (after subtracting HOA fees if necessary).
For example, a place that rents for $1500/month - but has $200/month in HOA fees therefore nets out to $1300/month to the owner in rental income.
At 120 months (i.e., the lower bound), it would sell for $156K and at 180 months (i.e., the upper bound), it would sell for $234K.
Smart property investors of course would prefer to buy closer to the 120 month multiple (or even below if possible)…
I’m just trying to get a feel for where prices need to come down to possibly attract (legitimate) investor money (as opposed to speculators who are simply looking to unload overpriced property to an even greater fool)…
I’ve looked at a few Craiglist rental listings and tried to compare their rents with asking prices of similar properties for sale. This is fairly easy to do in places with a lot of new condominium construction…
The very rough and unscientific ratios that I’ve found are:
DC/NOVA = 250 months
San Diego = 280 months
So just to get back to the upper bound of 180 months, prices would need to fall by (assuming rents do not increase):
DC/NOVA: 28% drop from today
San Diego: 36% drop from today
Anyway… just my 2 cents… what do you all think?
I find it is difficult to get any 5+ multi-family to cash flow, even at 100 multiple. We’ve got a long way to go to get back to sane price to rental values.
Here’s an example in Arlington, VA:
For Rent: $1,995
http://washingtondc.craigslist.org/apa/135179331.html
For Sale: $499.9K
http://washingtondc.craigslist.org/rfs/134349840.html
It doesn’t say what the HOA fees are - I have to assume it’s at least $195/month…
That means the owner would be getting $1,800/month in net rent.
With a similar sized unit list at $499.9K, that gives us a Price-To-Rent Ratio of:
278
So… to drop back to a 180 ratio, the price will drop by 35%…
EastHawaii: I (obviously) agree with you that we have a long ways to go… I’m just trying to get the discussion going in a more factual and valuation-based manner rather than a sort of dogmatic “Prices will drop by 60%, 70%, etc”…
Ben: This might be an interesting topic… let’s see what the Price-to-Rent Ratios are around the country…
bruddah -
A veteran property owner/landlord of mine in SF used to say the way to compute it here is to multiply the annual rent by 20.
So if $2000/month in rent; then the place should sell for $480,000.
$2000*12*20=$480,000.
Places renting for $2000/month in San Francisco today are selling for AT LEAST $600k, if not a lot more. So the ratio is out of whack here - at least presently. How much? Well, roughly…
$600k/$480k = 25% out of whack
I don’t think places in SF will ever sell for 180x monthly rent - that is too low. Probably in the range of 250x, by just estimating.
“Real estate specialists say the relative glut of homes for sale this year indicates a balancing of the market.”
If this is balancing I really wonder what a “bad” RE (for sellers) market would be like =)
Isn’t it kinda funny how all the articles try to make it sound as if this is a just normalizing? They imply that this is as bad as it’s gonna get.
If this is normalizing, inventory doubling and demand halving, the interesting point will be when the market becomes bad enough for sellers that the papers say “bad for sellers”.
you are right Rich…
the smartest monkey’s (or luckiest, I should say) got out of most market’s by FALL 2005.
the next smartest monkey’s were in escrow by “the Holidays”
the remaining smart monkey’s realize that this “adjustment” is not seasonal, but rather a permanent trend toward downward prices and will cut their losses NOW and DUMP their properties before the $h!t really hits the fan.
We’ve seen the monkey’s in DENIAL come out in droves…
and now we are starting to see the angry monkeys.
You haven’t seen the monkeys really angry yet, because we haven’t had a rush of stories about homes going up in flames ‘in suspicious circumstances’. Not Joking, unfortunately :(.
Nobody has mentioned yet that Hull is a complete dump aside from a few decent neighborhoods. Schools are terrible, drugs are rampant, and it’s the most depressing place in the winter. Blah.
Generally speaking, there seems to be much ignorance about the
term ‘Victorian’. A ‘Victorian’ home is, quite simply, a home that
was built in the Victorian era — from about 1837 - 1899. Typical
‘Victorian’ homes from this period also have ‘Gothic Revival’,
‘Victorian Italianate’, and ‘Mansard’ features that most people can
identify in such stylized arches, eaves, windows, crowns, and
doors.
This home in Hull is newly-built, which alone disqualifies it for
the description of ‘Victorian’. It also has very little of the building
materials and style one would expect to see in a ‘Victorian’.
This may seem too trite a subject to write about, but I think the
day is coming when such information will appear in lawsuits across
the nation. Buyers need to know and understand information such
as this to avoid abuses and corruption from the building industry
and desperate sellers across the nation during the next few years.
- tim
You’ve got a point, Tim, but if the one they are speaking of at $949K is the same one that’s listed on realtor.com, it may be a true Victorian. It says that it was built in 1885.
http://tinyurl.com/f8dsx
BayQT~