Even If Prices Are Dropping, They’re “Still High”
The Boston Globe reports from Massachusetts. “Condominium prices in downtown Boston declined 6.9 percent in the three months ending Sept. 30, the second consecutive quarter in which slumping sales drove prices down. The median condominium price was $419,000, down from $449,950 in the third quarter of 2005, according to Link.”
“The median price was nearly 11 percent below the condo market’s price peak of $470,000, which occurred in the fourth quarter of 2005. The number of condos sold fell 19.7 percent. Prices declined in 8 of the 12 central city neighborhoods tracked by Link.”
“The market correction comes as developers continue to plan and build condo projects in Boston. In the third quarter, there were 1,554 condos on the market, less than five months’ supply. ‘What’s remarkable is, yes, sales are off,’ but price declines are ‘marginal,’ said Debra Taylor Blair, president of Listing Information Network. ‘We’re not looking at 20 percent price declines,’ she said.”
“Larissa Duzhansky, a New England economist, predicted prices will not rebound until 2008 because housing has become increasingly unaffordable. In Boston last year, personal incomes increased at a 4.7 percent average annual rate, failing to keep pace with a 9.5 percent housing price increase.”
“‘Even if they’re dropping, they’re still high,’ said Duzhansky.”
The Easton Journal from Massachusetts. “Homes in MetroWest are staying on the market on average as much as five months longer than a year ago as buyers sift through the inventory and wait for price reductions.”
“That’s a normal pattern during a market correction, said the chief economist for the National Association of Realtors, and shouldn’t ruffle sellers who had planned on making a move months ago. After all, these sellers, who increasingly are reducing their asking prices, also are, or will be, buyers.”
“They buy another place and are then on the other side of the marketplace, checking out what’s available and hoping to negotiate a lower price.”
“And now’s the time to buy for the long-term. ‘Many potential home buyers who have been taking a wait-and-see attitude or taking their time and being methodical in the search process are being enticed by lower home prices,’ said the NAR’s David Lereah.”
“Eleven MetroWest communities saw sales drop last month, compared to a year ago. And the median price dropped in 10 of the 16 towns. In Ashland, the median sale price dropped 14 percent from September of last year. Sales in Framingham dropped by 35 percent, the median sale price dropped just 4 percent. The average days on the market for a home in Holliston increased 400 percent.”
The News Times Live from Connecticut. “While housing prices in the United States are spiraling downward, those in the Danbury area are in what might be considered a slow glide, one that’s been long overdue. ‘What we’re seeing is an adjustment,’ said Terry Mercede, manager of Prudential Connecticut Realty in Danbury.”
“While real estate agents said they’re seeing prices decline about 5 percent, they’re not surprised or even upset. What’s happening here, they said, is simply a long overdue change in the market. Prices have been rising for at least 7 to 8 years, many local real estate agents said. Normally, such cycles only last about 5 years.”
“(Broker) Cathy Masi in Newtown, said she thinks it’s been more like a 15-year upward swing. ‘I’ve lived here since 1963 and been in real estate since 1965,’ Masi said. ‘This is the longest upswing I can remember.’”
“‘We got spoiled,’ said Realtor Sal Pandolfi of Danbury.”
“What this created was a surplus of housing stock, although builders were completing new homes, people weren’t buying them. Masi said that while sales are declining, active listings with the Connecticut MLS for Fairfield County are now up 26 percent.”
From WTNH in Connecticut. “The housing bubble is deflating nationwide. What was a sellers market has become a buyer’s advantage. That’s especially true when it comes to new construction.”
“When you’re talking about new homes the numbers aren’t good for builders anywhere. A brand new four-bedroom house in Bristol has been on the market since it was finished being built in September of 2005.”
“‘We expected this to be gone after the third person saw it,’ says Carrie Cameron of Cameron Builders. ‘With all the bells and whistles in here this should’ve been gone a long time ago.’”
“She says plenty of people have been through, many more than once, but no one’s made an acceptable offer. And this price of this house has recently been reduced by $50,000 to under $500,000. ‘The market has switched from a seller’s market to a buyer’s market,’ said Linda Baumgarten, director of the Connecticut Real Estate Investors Association.”
“Baumgarten says potential buyers are waiting longer and waiting for a better deal. And that means houses like this are taking longer to sell and for much less than a builder anticipated. ‘The chances of you making money as a builder is right up there with winning the lottery, so you have to be very careful when you do that,’ Baumgarten said.”
“The Camerons are waiting before they build on the other lot they own in this neighborhood. They don’t want to start on a new project while they’re still paying for heat, electricity, and taxes here. ‘It’s never ending until it sells,’ Cameron said. ‘We’re paying for it with an empty house. Nobody’s living here.’”
Let’s assume another 11% drop is in the cards. Let’s assume that this time next year, the median condo price is $372K.
If a builder can begin construction now, and have his complex ready by next year, capitalized at $300K a unit, he still has a profit margin to look forward to, unpon sale. Heck, maybe capitalize at $250K a unit for a safety margin in case you have to hold inventory longer or sell at a further discount in order to compete with the next guy.
Builders now can get materials (and probably labor) cheaper than last year. Why not stay in business? I expect we’ll still see construction continuing for a while.
As you do in every down-cycle. This subject has beaten to death here, but you do bring up a good point about the drop in building materials. This is yet another ominous sign for the RE investor. You don’t want the builders to have any profit margin than they already have. The more the margin, the more the downside potential. Even though the market is dead, they’ll continue to build - they will continue to build until the carcass is picked clean. Yes, the builders are now in scavenger mode.
We had a thread on this the other day. It went something like, when a good is artificially overpriced, the economy will overproduce that good. And it will do so until the overproduction forces prices below breakeven. With construction materials dropping like a rock, that breakeven is falling too.
Sure, it would be best for the economy if these guys stopped building, and found a more productive endevour. But hands up from those who want to put themselves out of a job.
Excellent points Mozo, nnv, and Ben. And Ben, thanks for the wonderful resource you provide with this blog.
It’s a complex issue. It’s mostly dependent on cash flow. If most of the cash is tied up in unsold inventory and undeveloped land, and banks won’t lend, then building will stop and some builders will go out of business.
The big builders will retrench and proceed with building after clearing out the currently inventory. It won’t be spec building: it’ll be build to order.
Mid-size builders will probably take a bigger hit. Companies like Kara Homes which grew massively based on leverage will go down. Cash will be tied up in inventory, either uncompleted or unsold. Banks won’t lend to them and they will have no reserves to carry them over until they can sell.
Small builders come and go, so they’ll just disappear into the woodwork until the nexrt boom.
But NV has the hot side of this story. The lowering of prices will kill the RE specuvestor, and the people who bought at the top of the bubble wil be stuck. And their stories will be fodder for the MSM for years.
Psychology was a big part in creating this boom, and it will dictate the bust. That’s why DL, LAY, and Watts are fo fervent in their spin: they want to control the psychology to the largest degree possible. But the market’s gotten out in front of them.
Well said on all counts.
There are too many sellers who are wither in denial or who cannot afford to lower the price on their home due to existing liens (i.e. HELOC).
Also: I need a snappy comeback to those who say (insert huffy tone):
“Well, I’m not going to just give it away!”
Any suggestions would be gratefully appreciated!
“Not going to give it away?”
If you can’t pay the mortgage is it better to have it taken away?
Not going to give it away?” That’s what Sally, your neighbor down the street told me 6 months ago, and I see her house just sold $50,000 less than when she listed it! or was that $100,000 less. God, there are so many houses for sale around here, I can’t keep track of all the mark downs!!!
Tell them “OK, you keep it.”
You can tell them, “You will eventually, to the bank.”
Soon, very soon, the break-even transaction is going to be the ultimate scenario. These folks will be walking away feeling like the sole survivor of a devastating plane crash. If they could only see the end of the road fast approaching, they’d be “giving it away” today.
Just tell them it’s the season for giving …. they’ll feel better doing the right thing.
Actually, I’m wondering what’s going to happen when the bus drops off 500 trick-o-treaters in a neighborhood of well lit homes, but no one actually lives there. Could be a lot of pissed off little goblins. Might be the first year of many to come, where the tricks outnumber the treats …..
The “trick” is the realtor lady working the open house, working for a buyer
Answer: “You gave it away when you spent the home equity loan”
Right on AZ lender ,they already spent it . I wonder when people in the news are going to admit that the last 3 years at least was a speculation market and a mania that cause the false run-up in prices?
Why settle for a comeback that might make then think? Tell them you wouldn’t give it away either.
- ‘‘What’s remarkable is, yes, sales are off,’ but price declines are ‘marginal,’ said Debra Taylor Blair, president of Listing Information Network. ‘We’re not looking at 20 percent price declines,’ she said.”
‘
Deb, Please wait another two quarters and report back on the declines.
only 10% price declines.
Deb has got a classic case of the “yets”. Just add the word to the end of her statements.
Or rather she has the, “not yets,” as she forgot to add it.
Josh
“And now’s the time to buy for the long-term…” said the NAR’s David Lereah.
David is an idiot, but he is no dummy. He knows that it is TRANSACTIONS that matter and not price. Transactions are what put bread on real estate agents table.
More generally, transactions put bread on everybody’s tables, and they only generally happen with rising prices. So you can see why the Fed has a distaste for deflation.
Within a year or two, realtors with NAR might lose their businesses to online flat-fee services. The prices are still high, so sellers are still willing to pay 6% to get their properties sold. But who knows what will happen when that 6% commissions become unbearable?
I think it’s becoming irreversible that online/flat-fee realtors will get most of the businesses. Sellers will be able to sell their home quicker if they reduce the prices by 6% and list them online. That, in turn, will attract more buyers to bypass the commission-based realtors if they realize the best bargains are all online.
Thanks to all responding to my above post who made great suggestions!
BTW, goleta: I just moved to NM from Goleta. (Got my degree from UCSB.) Been checking prices there and an SB - sellers are refusing to lower their prices. Same with SLO.
Goleta, CA to NM? Now there’s a step function discontinuity.
Hah! Yep. The weird thing is that here in So. NM, people actually ask me “how do you like it here compared to California.” :/
I used to give a bland answer, but now I just say, “Don’t even ask. How can anyone compare coastal California to southern New Mexico? Can’t begin to compare.”
(Spouse was transferred here from Santa Maria. Moved here mid-July - about 25 degrees hotter in the summer than SB/Goleta. Not here by choice at all.)
I’m having a custom plate done that shows: RET2CA (lol)
BTW, any savings realized by moving to States like this one or AZ/TX/etc will be gobbled up by higher A/C costs during the summer. Particularly PHX and Tucson. Here it is the end of October and they still need to run the A/C.
Neither Southern California nor southern New Mexico have a climate and water resources to support a large population. You should move back to the temperate zones, the midwest or the south, where the land can carry the people. We are fighting an idiotic energy war in Iraq so bozos like you can air condition the desert. You are part of the problem.
I know of a house in Pismo Beach…about 1/2 mile walk to beach…on the market ~5 or 6 mos. Initial list price >$700K. Currently at $590K. It’s a typical ~3/2 ranch, corner lot on cul-de-sac. A friend of mine has been eye-balling it, with thoughts of purchasing (but he’s financially consrevative)…now, he and his wife just purchased a car…so, phew, they will not be the GF’s in this case. I’ve been preaching for a while to them.
Central Coast prices are coming down, in some areas.
OK, thank you for that tip!
Ideally, we want to buy in AG off of the 227. We would buy in SLO, but too many “party centrals.”
We will keep watching and waiting. Spouse makes 6 figures but house prices are still too high for us. Prices that existed before the run-up would be just right.
~Misstrial
Agree. That is one of the main features of a capitalistic society. It may take a little time, but the days of the 5-6% commission realtors are coming to an end.
It might have gained traction even sooner if it wasn’t for the housing bubble. The internet is still changing the way many businesses are conducted. During the last few years most people just weren’t paying attention to the exorbitant fees charged by realtors because the magnitude of the home appreciation was distracting them, but now that will change.
Skimming off the top seems to happen everywhere though. Just the other day I got my car washed and the bill was $11.89. I gave the clerk a $20 and she hands me back $12 even. I said what about the .11 cents and she responds with “oh you want it”. Man, is it just me or are the times a changin’.
you got $12 back from $20 bill for $11.89 bill and you are still complaining. May be she was thinking you were an idiot
Typo meant $8. And no need to flame fellow posters here my friend.
The somewhat ironic thing is that people are most willing to pay 6% in a rising market, when they need the least help selling a house. In a falling market, when selling is more difficult, they’re less willing to pay someone to help them sell. I do agree that technology is bringing the days of 6% comissions to an end.
I agree that he’s an idiot, but no dummy. He’s an idiot for putting himself in a position where he had to say stupid, deceitful things, but I’m sure that he’s quite aware of how this thing works.
Hey Dave! I’ll bet the publicity was lots of fun on the way up! Did it ever occur to you that you would be notorious on the way down? OH! I forgot, you didn’t think it would go down.
BINGO!
It’s the “action” that generates what they care about……
Here in Finland the commission is already 1,8 - 3 percent because of aggressive online competition. One real-estate agent has this idea of “silent selling”; They take pictures of all kinds of houses and people can bid for those houses EVEN when those houses are not for sale. Customers can mark area, street or even house on where they want to buy.
ben, you should write a seperate book just on david lereah.
Or, in the manner of “Guns Germs & Steel” or “Gods Graves & Scholars” or “Godel Escher Bach”, we could have
“Lereah Lay & Lizzie” (maybe someone can think of a more appropriate third criminal than Ms Borden?) — I am always telling FB’s to think of the NAR as the current Enron.
lereah is heavily into florida condos though, so he’ll experience enough embarassment.
Were’s “auger” and his allusions to sodomy when you need them? I’m afraid “embarassment” is not enough justice for the likes of DL.
It’s one of the things I don’t quite get on this board–why do people demonize Lereah?
Granted, he is a paid shill. But I consider him more of a politician than a (cough) economist, so he’s really just doing his job when he spins and spins and spins. Or am I just too cynical in that I expect that behavior is “normal”?
I kinda see what you are saying. But I believe he has been more honest in private presentations, so what he is saying at this time could be viewed as fibbing. And if anyone is relying on his word, (which I doubt there are many), he may be doing them a dis-service.
Ben,
You are always so polite. Fibbing is much too polite for the thinks that DL says.
My answer is: What he says and does affects peoples lives now and for the future in big, big ways. If he believes what he’s saying, he is an incompetent idiot. If he does not believe it and goes on saying, then he is a self-serving liar.
‘Just doing my job’ when your job has a big impact on people’s lives is not reason enough.
I could go on and on about him, but he deserves all the scorn heaped upon him.
Auger is right here! I’ve been laying low with my V-PAP’s (very painful ass-pounding) because they were offending some sensitive readers. I’ll be back to sending out rounds shortly because I think we are on the cusp of some serious financial ass-pounding articles and I want to save myself for those! You don’t know how many times I started typing an order for the waitress only to stop myself.
Hey auger-inn — do you want to comment on the Springfield is different article published on Friday?
http://www.news-leader.com/apps/pbcs.dll/article?AID=/20061027/BUSINESS/610270350/1003
“It’s one of the things I don’t quite get on this board–why do people demonize Lereah? Granted, he is a paid shill.”
You answered your own question.
Hey Oz, I don’t have a good understanding of that area (having spent the summer an hour south) but what I gather is that the higher end is dead with the lower end still seeing moderate sales. I’m staying in the Springfield area for a month or so starting next week so I’m going to try to get a better idea of what is going on. I have an anecdotal report on the Minneapolis area as a relative that is a realtor in the SE metro area was visiting last week. She reports that the sales volume for herself personally has been good but that SFH prices are down about 15%-ish with inventory up about 50% or so.
My initial impression (without any evidence to support it) is that the SW MO area is working through the final impulse of folks who are equity bandits from the coastal markets and moved there. All the construction trades have been very busy throughout this past summer. I suspect that won’t be the case next summer. I’ll let you know if I get any info to pass along. Hope all is well out in Republic!
“‘Just doing my job’ when your job has a big impact on people’s lives is not reason enough.”
Anyone who listens to advice without considering who pays the advice-giver’s salary and which side of the bread is buttered for them is a fool soon to be separated from their money…
‘But I consider him more of a politician than a (cough) economist, so he’s really just doing his job when he spins and spins and spins. Or am I just too cynical in that I expect that behavior is “normal”?’
He is not a bad economist. He has a PhD from Virginia, for heaven’s sake. It just so happens that he is paid to take positions which support the NAR’s mission (get as many people as possible to buy and sell houses as often as possible).
F$ck David Lereah and everybody like David Lereah. What is wrong with you people? Have you lost your entire sense of right & wrong? I always tell my wife, “I will be a busboy before I will sell my soul for a buck”. I would rather survive on a diet of bologna sandwiches and integrity than a lifetime of prime rib and deceit.
Anybody that can’t understand what is so wrong about this Lereah fellow needs to look deep within themselves. You might have some things that you need to change as well.
That’s my rant. I’m disgusted by some of these previous posts.
Posted by auger “Auger is right here! I’ve been laying low with my V-PAP’s ”
You just keep calling them as you see em” !!!
That is way off. Whoever is paid by the NAR to be their spokesperson is supposed to find a way to explain why now is the time to buy. That is their job. If potential buyers have an understanding of “buyer beware” that is so weak that they take what salespeople say as truth then they are probably in trouble no matter what.
It is bizarre that people are claiming the spokesperson for the National Association of Rocketry had an effect on anyone’s life. Is anyone going to step forward and claim that they bought way too much house because a Realtor, any Realtor, told them too?
Our society is full of sellers. A basic procedure for many is a trip to the local superstore to buy necessities at economical prices. If people are suckers for advertising then they will buy the wrong amounts of the wrong things anyway.
Stop listening to sales people! Seriously!
David Leaher is licensed and has an ethics clause he signed with the NAR.
All agents have a duty to “be truthful” in all their dealings. All the agents talk about is honest dealings, good faith, integrity, honesty. DL should be held to a higher standard.
I don’t know of any politician who signed an ethics clause.
Even pediphilia is given the brush off if you are in the right party.
Interesting suggestion, but I don’t think it holds water. I searched for the Realtor Code of Conduct 2006, and it looks to me as though DL is OBLIGATED by the code to lie to the public!
First of all, the code differentiates between “Duties to Clients” and “Duties to the Public”.
Realtors are required to “deal honestly” with all parties under “duties to the client”. So if you are paying DL a percentage of your purchase or sale, then he has that duty to you and the counterparty.
But under “Duties to the Public” (Standard of Practice 10-1), DL may be required to try to avoid causing panic selling! “[...] nor shall they engage in any activity which may result in panic selling.” (Granted, most of that section is about racial/religious/ethnic profiling of a neighborhood.)
Nowhere is the word “truth” or “truthful” found in the code of conduct.
It’s interesting that DL might be violating the code of conduct if he told us that he truly believed the market was going to tank.
Reference: http://www.realtor.org/mempolweb.nsf/7c7e04a0f916f203862568940053aa55/256d9ba90a43ff3186256f70007cd036?OpenDocument#Duties%20to%20the%20Public
Yeah David, if you’re a Republican your “out of there” before the end of the week. If you’re a Democrat you stay for as long as the sheep re-elect you.
Give me a break! Who’s truth are you taking about? Even in the best of times the truth is objective reality which is only ever perceived subjectively. If I say “Now is the time to buy because homes are getting cheaper”, is that the truth? Depending on what resources and needs people have it might actually be exactly the truth.
auger-inn,
Great I look forward to your observations of the Springfield housing market. Do take a look at that article in the News-Leader. I made the same point about the equity bandits in my post to the article.
I’m about 15 miles nw of Republic off I-44.
(Builders now can get materials (and probably labor) cheaper than last year. Why not stay in business? I expect we’ll still see construction continuing for a while. )
In the long run, space prices tend to merge with the cost of construction including land. So if the existing homeowners can’t sell and land and building costs fall, the sales will just go to new homebuilders at higher prices than they would otherwise have had, but lower prices than today.
Yes, but oversupply can lower prices to less than replacement cost. I’d bet that VERY few condo projects will be starting in ‘08.
“Larissa Duzhansky, a New England economist, predicted prices will not rebound until 2008 because housing has become increasingly unaffordable. In Boston last year, personal incomes increased at a 4.7 percent average annual rate, failing to keep pace with a 9.5 percent housing price increase.”
People are seriously fooling themselves if they think prices will rebound anytime in the near future (~within 5 years). Prices will not rebound for at least 15 to 20 years if they do at all. This is what history tells us, just take a look at the Nikkei Bubble in Japan. That downturn has been ongoing for 14 years and is still not over. In this boom, what has happened is that first and second time buyers were replaced by investors and speculators which in turn priced out the former. Now the investors and speculators are gone and so the top of the pyramid is in the stratosphere while the bottom of the pyramid (1st & 2nd time buyers) is still on the ground. It will take a long tome for the top to return to the ground. In the meantime, greed will cause people to lose a lot of money because, by refusing to lower their price, they will just follow the market down. People who are not greedy and know how to price their properties correctly will make out OK. Just watch …
“Larissa Duzhansky, a New England economist, predicted prices will not rebound until 2008
I am not an economist but I took economics for educational credits and I have to say she is thinking the same way as I do. After seeing the run up and now the start of the nose dive 2008 is gonna be a telling year..2007 is gonna be dead. It is pouring rain today good time to blog but when isn’t it.
OT GDP Alert!!!
Holy Shiite!!! There is a more detailed article on the screw up in the GDP number on Bloomberg due to the auto calculation. These guys in the government are doing everything they can to swing the elections. All Bears with some skin in the game better start shouting because the GDP number would have been about 0.9% for the third quarter without the screw up and the market would have tanked. The market still may tank on Monday if the news gets out far enough and it sticks. The link to Bloomberg:
http://tinyurl.com/y6mprf
This looks like a BIG DEAL but I can’t find the news anywhere else. What do you all predict will happen in the stock market Monday? I just had a conversation with my investment analyst on Friday and again decided to stay mostly in cash and bonds. I missed the big run-up over the last 6 months, but I’m still thinking that the stock market is going to turn south.
There are two things that have VERY consistently forecast future GDP growth. New home starts and new cars sales. Although we’ll hear nitpicking about the GDP number, I think the bigger story could be that these two things are coming into alignment with each other. Down.
Yeah, and it’s the same thing with all the hedonic adjustments to the CPI. Damn, I just wish i was smart enough to understand all that stuff, then maybe i could go really far in life.
I agree and sensed there is something voodoo about GDP numbers, House’s, Cars, ah, who give’s a rats a$$….. boy. sell 50 planes and the economy is good for another 6 months.
BS.
Is that Michelle Kwan from house hunters
http://71.103.192.110:8080/radiodestiny.html
LMAO
“After all, these sellers, who increasingly are reducing their asking prices, also are, or will be, buyers.”
If only there were some mechanism or arrangement by which the sellers could postpone their buying decision while living in a house borrowed from someone else! Too bad that’s unpossible and they have no alternative to buying. (I learned this from David Learah and he’s smart and has written books with multiple titles because one title just didn’t cover the geniusness of his work).
This so-called bubble bursting better just be beginning. Because here in NoVA, prices are still waaaaaaaaaaaay out of range for the average buyer. Yeah, they’re taking a little longer to sell. And the poor sellers are having to knock off a few Ks from their price. But with over a 100% markup in less than 5 years with salary increases less than 5% ….it’s really not much to talk about at the moment.
I do not think it is the “buyer’s market” yet, they are still trying to manipulate people into buying homes that they can not afford.
Why don’t people just understand the fact that if you make $50K/year you can not afford a $300K home, even though it went down from $500K.
Market is still extremely unaffordable for average people and this affects the economy badly. If you pay over 50% of your income to mortgage or rent how can you spend money on other things? Especially in MA the situation is worse since most homes are old and need major renovations. People who finally buy a home they can not actually afford will also spend money on renovations and or maintenance. With almost no salary increase this is impossible!