The Housing Bubble

A pair of reports provide an update from the northeast. “A majority of people who moved out of Massachusetts last year report they are very satisfied with life in their new state and would not move back, a Boston Globe poll has found. Seventy-three percent of those surveyed said they live in a home that is bigger than their home in Massachusetts was.”

“The top reason people gave for leaving Massachusetts was a better job, followed by the cost of housing, family ties, and the weather. In a separate set of questions, 50 percent of those surveyed said the cost of housing was a ‘major factor,’ and a better job was cited as a ‘major factor’ by 39 percent.”

“‘To me, what’s new about this period is that now housing costs are being factored into people’s migration decisions,’ said said William H. Frey, a demographer who has studied migration patterns throughout the United States. ‘In the past, they would look more or less at the job and what the job paid, but housing costs would not factor as much.’”

And from Connecticut. “The buyer’s market has officially hit Ridgefield. Local Realtors describe the market as ‘normalizing’ and ’softening,’ but no matter how it’s phrased, the fact of the matter is there are now 233 houses on the market. Last May there were 149 houses for sale in town.”

“(Realtor) Laura Fried said she saw the market forces at work now as simple economics, partly stemming from a glut of houses left over from 2005. ‘The way I see it, 2005 was a question mark year for buyers. They heard a lot about bursting bubbles and they sat on the sidelines to see what would happen. ‘The inventory built,’ said Fried. ‘Now there’s a classic economic situation of supply and demand, that creates a downward pressure on prices.’”

“‘The biggest problem is inventory accumulation,’ she said. ‘There are all those houses from 2005 and then the new houses coming on for the spring of 2006.’”

“(Broker) Patrick Fink said he felt some buyers were scared off by media reports of a ‘bubble’ in the Northeast housing market, which he said was an unfounded fear. ‘The bubble is an invention of the media,’ he said.”

“(Realtor) Jack McAuley speculated that one problem with today’s market is that sellers set their prices with too-high expectations. ‘Sellers typically are behind the herd instinct, particularly people who don’t have to move,’ he said. ‘People are too late to the party. If you bought your house in 2003 and sold it in 2005, you’d make money probably. If you bought your house in 2004 and tried to sell it now, you’d probably be underwater.’”

“He said sellers expect the prices to keep rising, and buyers expect to cash in on the ‘buyer’s market,’ and the result is frequently a ’standoff’ over as little as a $10,000 difference.”

“‘You see a lot more expireds right now,’ he said. ‘If they don’t sell it, they take it back off the market. I tell all my sellers that the buyers are who establish the price. What I’m seeing now is there’s too much of a stare-down here. Last year and the year before, buyers felt they had to make concessions. Now buyers are playing more hardball. Deals are falling apart. There will definitely be an adjustment here.’”

“Ron Van Winkle, a West Hartford economist, said there is some concern that the upper-end market in Greater Hartford has been overbuilt in the past few years as more builders entered the marketplace to take advantage of the high demand, and higher profits, during the peak of the housing boom.”

“‘We saw a lot of new builders trying to enter that market,’ Van Winkle said. ‘And because there are fewer buyers at that level, only a few decisions by a few builders can cause the market to go out of balance very quickly.’”

“Tom Francoline, a high-end builder in Avon is so confident in the market that he is building four ’speculative’ houses in the area, meaning he’s building the houses even though there is no buyer lined up. ‘Some people only want new construction, and they don’t have time to spend eight months custom-building,’ he said. ‘You don’t want to lose that segment of the market, so it’s important for us to have finished houses available.’”

“But custom builder Gilles Michaud said his Avon company is cautious about the market and is only building houses where a buyer has signed a contract. ‘People have more of a choice, and that’s happened very quickly,’ he said of the number of million-dollar homes on the market. At the end of April, more than 175 new and existing homes priced at $1 million or more were listed for sale.”

“‘There seems to be an imbalance, which has created an uncertain future,’ he said.”