‘Sharp Drop’ In Massachusetts Home Prices Has Begun
The Metro West Daily News has this report on Massachusetts. “Housing prices are projected to drop 5 percent during each of the first two quarters of this year and Bay State residents remain highly concerned over the cost of housing, market analysts said yesterday.”
“A ’sharp’ drop in Massachusetts housing prices has begun, said Alan Clayton-Matthews, a professor at the McCormack Graduate School of Policy Studies at UMass. ‘The same economic forces that led to very high and fast-growing prices here in the past are now working in reverse,’ he said. ‘Housing prices are almost certainly going to decline in the near future.’”
“‘When we do have this housing price correction it is going to help our economy just as it did in the 1990s and is one of the requirements we need for the Massachusetts economy to grow again and expand robustly and for population growth to return,’ said Clayton-Matthews. ‘The longer we avoid a correction in housing prices, the sharper that correction will be and the more steep it will be.’”
“‘The level of concern over housing costs in both Massachusetts and in Essex County housing remains quite high,’ said Michael Goodman, director of economic and public policy at the UMass Donahue Institute, noting the public cares as much about housing as health care and public education. ‘It’s clear that housing costs, housing policy and housing development remain a very relevant issue in Massachusetts public policy circles.’”
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Testing the edit function.
If house pricing is falling, what is the incentive for me to buy one???? Losing money??? It most certainly will be an interesting spring!:-)
“When we do have this housing price correction it is going to help our economy just as it did in the 1990s”
I am glad this is finally being mentioned. I think this is accurate. RE prices continued to collapse even as the economy strengthened. Idiots got burned, but non-idiots had more income because they weren’t tossing it on the housing bubble bonfire. I think (hope?) there will be short-term pain for the current catastrophe, but an enormous long-term benefit.
…and hopefully we’ll stop losing the smart young people who had to move away from Boston to afford a place to live. I miss the interesting folk who have been replaced by yuppies here!
We will actually have more disposable income on a month to month basis as it will not be locked up in mtg. payments.
BTW, http://www.zillow.com/ is now up, but the servers are overwhelmed right now. Realtors(tm) accustomed to 6% commissions are sweating bullets over this.
Your giving this site way too much credit
Thats a cool site, I wonder how accurate it is. I put in my address and I figure its about $25K higher than last resale in my complex.
Given that ziprealty makes money selling homes, would it be whatever surprising if it turns out that zwillow has a very rosy bit of upward bias in their value estimates?
Once we start seeing stories in the MSM how RE is supposed to drop 10 % for the next 6 months, I think that the drop could be a little bit more precipitous than that. There is no incentive to purchase a declining asset. That removes a lot of people who could, but wont. I certainly will not buy anything this year, choosing instead to save my money, and pay off all debt.
Meanwhile, in NYC, the Daily News looks backward through rose-colored shades:
“What’s hot? All of Brooklyn is hot,” said Steve Spinola, Real Estate Board president, citing across-the-board increases in the value of apartments and one- and two-family homes.
The report also boasted the top prices fetched in two exclusive neighborhoods: The average DUMBO-Fulton Ferry apartment goes for $1.26 million, and family houses in Brooklyn Heights sell for an average of $2.7 million.
…
Many renters said they feared they could never afford to buy homes in Brooklyn - and expressed regret they hadn’t bought years ago.
“It’s not within reach,” said Deborah Stewart of downtown Brooklyn, who has wanted to buy for years but said, “It’s impossible at this point.”
….
Observers debate whether the prices of New York property will drop sharply or there will be a “soft landing” for real estate, but Spinola argued homes will just get pricier.
“I’m not sure it’ll be a landing, soft or otherwise,” Spinola said.
“I think it will be a continual increase, maybe not as dramatic as it has been. There just isn’t enough housing for everybody.”
http://www.nydailynews.com/02-08-2006/boroughs/story/389296p-330301c.html
It cracks me up that they counter “obvservers” — i.e. the Mayor, economists, actual data on home sales from late dec, reduced listings, with a quote from a guy called “Spinola”
But seriously, the Daily News reaches a working class audience who I hope is not fooled by this. Realtors have been very aggressive pushing risky mortgages onto folks who can’t afford them. It’s just plain irresponsible for the News to paint the market this way.
Can He Make Realtors Obsolete?
At Expedia, Richard Barton was the terror of travel agents. Now he’s putting real estate data online.
From the LA Times.
http://tinyurl.com/b6jt6
Don’t believe the hype. It’s all marketing spin. He’s offering nothing you can’t get yourself without a trip to the recorder’s office. He’s just makeing it more convient. The bottomline is he is just offering a new space for the real estate industry to advertise.
Saving me a trip to the recorder’s office is invaluable.
Testing and suggestion, the name/logo at the top should link back to the homepage. The new site seems a lot faster.
Agreed. I was just about to post the same thing… it’s useful for navigating between articles.
“The longer we avoid a correction in housing prices, the sharper that correction will be and the more steep it will be”
This also applies the business cycle.The longer you avoid the downturn, the worse it is when it eventually comes.We won’t have to go to Glouchester to get the “Perfect Storm”
Looks like Essex county is the Eye of the Bubble!!
Massachusetts
“‘When we do have this housing price correction it is going to help our economy just as it did in the 1990s and is one of the requirements we need for the Massachusetts economy to grow again and expand robustly and for population growth to return,’ said Clayton-Matthews. ‘The longer we avoid a correction in housing prices, the sharper that correction will be and the more steep it will be.’”
Wow! It’s nice to hear someone with some common sense.
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check this new Real Estate site
http://www.latimes.com/business/la-fi-zillow8feb08,0,1329121.story?coll=la-home-headlines
I read the full article and it’s all over the place. Hard to say what it is actually predicting and sound like a liberal pitch for more affordable housing.
I actually live in Essex County and here’s the facts. Prices are coming down- the stupidly priced pieces of cr*p are being re-priced and if they’re not they sit. However nice homes fairly priced (meaning still really high) are selling quickly and near asking.
Still no evidence of “bursting” as has been predicted for a year. Still just some hissing.
10% drop in 6 months means $100K/year for a $500K home.
With that $100K saving, you can rent that home for at least 5 years. In 5 years, the price for that home will drop at least 50%. So the longer you rent, the more you save.
spoken by a man on the gov tit
recessions are a drag for the rest of us
“‘When we do have this housing price correction it is going to help our economy just as it did in the 1990s and is one of the requirements we need for the Massachusetts economy to grow again and expand robustly and for population growth to return,’ said Clayton-Matthews
10% of 500k is actually 50k not 100k.
10% drop in 6 month means 20% drop a year. So it’s $100K drop for a $500K home.
That’s if you are assuming past performance is an indicator of future gains / loss.
This is if it stays on a linear path. Chances are it will either slow or accelerate. I think it will slow first AND then accelerate, but I see your logic.
15% drop = recession
25% drop = depression or more than 3 qtrs of neg growth
don’t worry the gov will print money like mad
And if the Fed prints money like mad the dollar will fall, faith in the Fed will decline and the risk-premium on long term dollar debt will rise.
And the elderly wil starve when a $500 check covers a few bags of groceries. Wage pressure being non-existant, there will be more defaults, more belt-tightening, more companies failing & unemployment will explode. That should fix the economy alrightee.
Higher risk premiums, bye-bye conundrum.
Home prices in MA need to fall at least 50% for businesses there to be competitive again. Most PhDs working for bio and info tech companies are not paid well enough to afford a median price home within 20 miles of those companies. The Fed has to make US companies competitive again and busting the housing bubble is one of the best things they can do.
It is interesting to think of how this might change the This Old House show. Maybe in the future they will rip out overdone kitchens and granite counters and replace them with multiple units with IKEA style spec kitchenettes, or gut condotel units to create spaces large enough for humans, possibly even whole families, to live in.
On the radio this morning I was listening to a piece about how Massachusetts has had one of the slowest economic recoveries from after the 9/11, Enron, Tech Bubble implosion. They often cite housing prices and slow job creation as the two major factors in why Massachusetts has not been able to recover faster. They also spoke about some major companies, like Fidelity, moving out of Boston. The home prices are crushing the life out of any economic recovery in this state because it is sending the young people heading for the hills.
Mayor of Boston, Tom (mummbles) Menino is trying to get an economic stimulus package going that relies more on new construction and job growth and the revenue that it generates from new taxes. There has been criticism that the city of Boston relies too heavily on property taxes to bolster the cities coffers. When there is a downturn in the prices and the property taxes drop.
Would property taxes drop, though? In my area, the taxed value is phased in and reassessed every few years. I think a lot of people will be shocked at how much their property taxes will be going up in the next year due to the increases of the last few years.
The NYTimes has an article on Zillow:
This is a lot like the Newspaper business who are furious that classifieds are now free. Commission avoidance schemes are spreading and it’s a good thing.
The site also includes price appreciation (or depreciation) data in a form that resembles stock charts.
Real Estate ONLY appreciates. What good is a chart?
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Redfin.com? What the…? Wasn’t “lowball.com” available??
I think the MA economy is misunderstood and not well represented by statistics. Somehow a lot of people seem to do okay out here, but almost everyone you talk to thinks things are not going that well.
If you don’t own a home already it’s a stretch to buy one. If you do own a home, then you’ve probably got some equity to make a down payment on another to get the mortgage.
If you have a good job and have held it for a while, it probably pays pretty well because salaries went up for a long period. If you don’t have a good job, unlikely that it will be easy to find one.
So net/net, it’s kind of like the country as a whole- if you’re well situated you’re happy, if you’re not its tough to change.
I have been both dislocated from my job and my marriage in the last few years so I see both sides. I am the exception in that I have come out okay.
If you talk to someone in MA however who has not come out okay, they tend to blame the place for not being able to afford a home or find a good job. They might be right.
I lived in MA and had a good job, 75K per year, had 3 properties 2 that were investments, two of the properites purchased in 00 and the other in 94.
I was doing very well for a single guy, however by the time i sold all 3 properties last year, i was still doing well,the cost of keeping all the properties running, maint. util. taxes etc., had gone up just about double in 4 years , not the base mortgage tho since i always staryed with fixed rates, and made it just not worth all the aggravation anymore as well it made no sense of the value of these properties was so high. It was easy to sell and run from MA.
ohh and don’t get me talking about auto excise tax,, lol
happy renting in sunny FLA. with $$$$ in the bank..
—AL
The psychology that pushed the price up was “get in before being priced out”. Now the tempermant is “don’t catch the falling knife”. Buyers, the remaining prudent ones, will wait until the excesses are removed. The activities will be mostly adjustments from adjustable to fixed loans for whoever can afford it. Speculators, naive buyers, unqualified homeowners, etc. will look for any exit or be forced out of the markets. The situation will be that of little demand and ample supply (lots of motivated sellers), which will drop or, in industry terminology, re-equilibrate the price to fundamentals. Home price will head south with the same velocity as when it rose.
Judging from people around me, there are still a lot of suckers out there.
Economists, journalists, builders, speculators, realtors, and “average” home-buyers each form a community of sorts. And each community has a slightly different point at which the accepted wisdom shifts. Which is to say, I think multiple “tipping points” can occur. And, critically, I don’t think the average home-buyer has abandoned the “get in before being priced out” mantra. Yes, popular opinion is shifting from the extreme frenzy…but it hasn’t “tipped.” I have no doubt it will “tip”, but the timing and extent of the “anti-bubble” are as predictable as the run-up…(i.e., not very).
I agree that a price drop is Mass will be good for the local economy.
As a personal example, I was recently choosing between job offers in Boston and NYC, and I ultimately chose NY because it seems to me that Boston is just about as expensive as NY at this point, but there’s a lot less opportunity.
I like Boston a lot and actually prefer it to NY. House prices were a big piece of the puzzle for me, and if Boston prices were 20% below that of NY (where they probably should be), I might have chosen differently.
For all of the Boston areas high real estate prices- the economy in the area and all of New England has not had an ‘economic recovery’ based on real estate - whichhas not been any kind of economic driver. In fact RE has had a negative on generating new jobs in the Boston region and throughout New England for ‘new jobs’.
In Connecticut RE has not had any kind of positive on job growth-despite healthy gains in prices. In the regions of the country which have had the fastest growth in this ‘recovery’ Real estate employment has been the main engine for job growth- therefore when these ‘hot’ areas slow- what will happen? You do not need the gift of a genius to figure this out.
As housing remains unaffordable for most of the young people, they will be forced to leave the state. The changes in demographics will hurt the economy. There can’t be much economic growth unless you have the young workers thriving in this state. This will automatically reduce demand for houses. With economic stagnation, the towns will be forced to either cut back on the civic services or charge more taxes and fees both of which will further hurt the house prices. I pity the citizens who have courted house arrest by buying in this state in the last couple of years.
At present, the average home prices in MA have not budged much from their fall 2005 levels. I do hope that sanity will have upper hand during 2006. In the mean time, I will continue to rent and watch my savings expand each month.
I agree, but MA has an abundance of universities and colleges that attract people from all over the country. When there are good paying jobs or the economy is good for start ups here, then they will stay. Right now, there are few new jobs, and those jobs that are here have dissapointing wages.
Wages in MA have been stagnant, but I think that the reality is that wages have gone way down. I do not seem to see the same level of high paying jobs that I used to see.
MA OTOH has little exposure to the kind of greed that we have heard of in the OC with the major subprime lenders. If ameriquest ceases to exist, it will do little to no harm to the MA economy.
“Housing prices are projected to drop 5 percent during each of the first two quarters of this year and Bay State residents remain highly concerned over the cost of housing, market analysts said yesterday.”
I wonder how long it will take the oblivious bulls in the Harvard housing finance program to note and acknowledge that prices are dropping like a rock?
Goleta said, “10% drop in 6 months means $100K/year for a $500K home. With that $100K saving, you can rent that home for at least 5 years. In 5 years, the price for that home will drop at least 50%. So the longer you rent, the more you save.”
I like that logic. Hardly anyone is predicting that rents will rise anytime soon, so why buy anytime soon?
I notice that we haven’t heard from one of our bulls, HomeownerMA, in a long time. Perhaps he’s making s much money in the Boston market that it’s eating up all his time.
“10% drop in 6 months means $100K/year for a $500K home. With that $100K saving, you can rent that home for at least 5 years”
I agree with the concept but not the math. To rent a 500k home, you’d need bare minimum of 2500.00 * 5 years = 150,000.
More realistic rent would be 100,000/2800.00= 2.9 years. I’ve already seen price drops around here in MA and I think I’m going to throw in the towel soon. I’m not looking for rock bottom prices but I think prices are now much better than they were last year (at least South Shore, MA). The data doesn’t show it yet but I can see price drops everywhere. You can at least negotiate now. Also, the interest rates can become much higher next year and unless you have a bag of cash or a real doomsday view over the next few years then you can probably afford to wait. I’ve seen a house where they were asking 709,000 last year this time and know they have dropped to 634,000. That’s already a 10 percent drop!
I know a lot users here are predicting 30 percent drops, I just can’t see this house dropping to 498,000 from 709,000. So, if I buy it around 600k (15 percent drop) then I get to live in a house I own and can still come close to the 100k savings you spoke of earlier. Don’t forget people, renting isn’t free either. Oh and by the way, I intend to live in this house for a long time.