September sales tank

The Warren Group has also released numbers for Arlington, making it clear that this story, published on October 10, was of highly dubious merit.

In September, the median price of a single-family house in Arlington was $464,500, down from $506,000 in August.

The number of single-family homes sold was 18, down from about 50 in August. It was the lowest figure for September since 1992.

I wonder what Doug Azarian thinks that buyers are "waiting on the sidelines" for? Perhaps they're waiting for sellers to adjust their prices to match the current demand (which is clearly lower)?

""It is definitely possible that all the reports about foreclosures, lack of financing, and the like have taken their toll and the result is that buyers are waiting on the sidelines," said Doug Azarian, MAR's president."

Ding! Ding! Ding! I am waiting on the sideline and I suggest everyone else does the same. The price of owning a home needs to come back down to the same plane as income levels. Buyers control the market. The longer we collectively wait the more correction there will be.

Kimberly,

How did condos do?

Mr. Azarian!
I'm one of those buyers that are waiting on the sidelines for a few years!
You know why? The answer is simple: PRICES!
I have excellent credit rating. My family's household income is almost as much as twice the median household income in MA. And we really want to buy a house!
Any responsible financial adviser will tell you that you can afford a house that costs as much as 3 times of your annual household income.
Ok, let's do some basic math.
1) Median household income in MA is around $58,000.
2) Average household can afford a house that costs $58,000 x 3 = $174,000.
3) The median sale price for homes in MA now is $304,000.
Can you see the difference?
4) To afford a median home in MA without taking "creative" financing that, as we now clearly know, leads to foreclosure, a family must have at least $100,000 annual household income.
Therefore, only families that household income is some 90% higher than the median household income in MA can afford MEDIAN house.
And in reality you are not going to find anything for $300,000 in good neighborhood.
Conclusion: sales and prices will be falling until prices become affordable for average MA residents without taking danger mortgages.

The chances of the average or median home price going to $174,000 are NONE. None. That's just not practical.

If you are hoping to find a home for $174,000, I suggest you look outside Massachusetts, or maybe in New Bedford or Lawrence.

I congratulate all of you who are sitting on the sidelines championing a slowdown in the US economy. "Let's just wait until prices come down to us." I would advise all of you that you are the problem in today's real estate market. The over inflation of '04 and '05 was caused by entry into the market by people who did not NEED to buy or sell.
For those living in the immediate vicinity of Boston I will tell you that all of the numbers are UP in September. Communities like Brookline, Cambridge, Arlington, Newton, and select neighborhoods in Boston are doing amazingly well despite the bad press. 2007 is on pace to be the third strongest real estate sales year IN THE HISTORY OF MA HOME SALES!!! I will ask you, when something increases 80% and then decreases 10% isn't that a net increase of 70%? Tell me another form of investment that has grown 70% over a 10 year period.

I have been a Realtor covering Metrowest MA Real Estate for the last 21 years. I can not remember it being this slow since the early 90's. The phone is just not ringing! It seems like there are quite a few buyers waiting on the sidelines to time the market much like in stocks.

Could it be that Booba makes a good point in that incomes have not kept pace with the price increases in Massachusetts? This as well as the sub-prime mortgage meltdown has certainly affected many buyers' mindset. It has been difficult for many to own a home in Massachusetts. The correction should be helping things but where is the activity?

John, I'm afraid the days are long gone when realtors, homeowners, and other interested parties could get anyone to actually listen to their unsupported assertions about falling home prices.

Now, people are much more savvy about the actual economics of the market--for example:

Surprising new research published by the Federal Reserve Bank of Atlanta concludes that the bulk of the increase was caused by innovations in the mortgage market, in particular the explosion of "piggyback" or "combo" loans that made it possible for people to make small or zero down payments. Young families with little savings flocked to those loans to buy first homes.

Trouble is, lenders aren't making many of those loans anymore because default rates on the smaller, second loans have been extremely high. That means that one of the main props of the housing market has been kicked away. If the homeownership rate drifts back to where it was in 1995, the outlook for housing construction and home prices could turn out even worse than the pessimistic projections.

http://www.businessweek.com/bwdaily/dnflash/content/oct2007/db20071019_946332.htm

Then we will keep waiting, John K.

I think it is a great time to buy now, mortgage rates are low, we are heading into the winter market and there are some great places to buy. If you wait too long, interest rates are going to go up, even though they may go down in the short term, as in the next 6 months or so, (Greenspan estimates in the next 3 years, rates to be up around 9-10%). When interest rates go up, homes are less affordable in the long run. Also, Boston only has so much space and the demand in good neighborhoods is going to be there regardless. So my opinion is, if you think you've found a place, buy it - you are winning on both ends right now - lower prices and low interest rates.

John K,

I'd like to know your rationale behind stating that a median price of $174,000 is not practical and won't happen. Booba Kastorsky gave a logical progression of reasons that led to his conclusion. You, on the other hand, have merely stated your conclusion without providing an argument. So, I'm naturally more inclined to listen to Kastorsky.

I don't think Booba was suggesting that median prices would ever fall as far as 174k. The point he was making is that there has to be some sort of correction. Prices in the area are far too high for the average income. Obviously people in the real estate business will downplay or spin whatever they can to encourage people to buy. It's our job to process the data that's out there (and there is plenty aside from the foreclosure hype) and make our own decision.

Greg Kiely:

The people waiting on the sidelines are just doing what rational consumers do in an inflated market that is deflating. If things are going so well, why do you feel so frustrated that you need to insult your potential clients and accuse them of "championing a slowdown in the US economy". This seems dishonest (not to mention that insulting people for being rational is simply not something a good salesperson does). Based on your comments here, I will certainly avoid dealing with you when I decide to look for a home.

John K:
I also agree that it's unlikely that the average price in MA will fall to 174k, but I think the original poster's point was that about 100 years of history tells us that over time home price to income ratios have held fairly constant but have recently diverged quite a bit. If you believe that this historical trend will continue, it means that either incomes have to rise quite a bit or else house prices have to fall. I'm guessing that a bit of both will happen. Either way, it means that residential housing is probably not a terribly good investment right now (I don't think there are very many economists who don't work in the real-estate industry would argue otherwise). Does this mean you shouldn't buy a house? No, probably not. You have to live somewhere and there are disadvantages to renting too. What it does mean, is that you're foolish to spend a high percentage of your income on a house right now in lieu investments that you might make if your mortgage payments weren't so high.

I think that any real estate agent who tries to convince you that you should spend as much as you can possibly afford on a house because "it's a great investment" is either dis-honest or else ignorant of basic economics.

Greg Kiely:

How can you so blatantly contradict the numbers that I posted about Arlington in the first comment? The numbers for Arlington are clearly DOWN, not "UP," as you wrote. Did you take a job with the Ministry of Truth?

Click here for a graph which clearly shows that the numbers are DOWN in Arlington, as well as Bedford, Belmont, Cambridge, and Lexington.

One more thing: I will tell you another investment that grew at an incredibly rapid rate--tech stocks. And we all know what happened to them. In case you need a reminder, click here.

The sky is falling the sky is falling. Great. Perfect time to buy. I have never been great at timing a market to perfection. Anyone know someone who is? One should never buy when every analyst tells you to buy. One should buy when every analyst tells you not to buy. We are two years in to a deflating real estate market. How much longer will it go? Who knows? What I do know is that the US economy is resilient and I don't believe that a cornerstone of our economy - housing - will suffer the collapse of all collapses. If you want a home and can afford a home buy it now. When the market ticks up again the same psychology that keeps you waiting today will keep you waiting then. At this moment rates are low and you can negotiate favorable terms with sellers and builders in particular. Want that nicer kitchen - ask for it but don't sit and do nothing or you might find yourself kicking and screaming that you missed the bottom. You won't know the bottom until it has come and gone months and months later.

based on the number of people on the sidelines, it will take me a long time before I reduce the price of my house. The agent really wants to take it down and I tell him "it is what it is". Going have to do this the hard way folks. Good luck to all.

Dave,

I applaud you for wanting to pick someone who shares your outlook on the market to represent you. I have an obligation to myself and my clients to make sure that people hear things like "in our community the real estate market is doing tremendously well compared to other towns around us." Is this the best market? Not by any means. Is this still a good market? Yes, I very much believe so. I study these numbers every single day. It is hard for an outlet like the Globe to give a town-by-town breakdown because they cover too wide of an area.

My point was not meant as an insult, it is more a reality check. Those who are properly motivated in this market are the ones who should be in it. A seller who prices their house because they truly need to get an additional bedroom for their new child will find their house will be at a more attractive price than one who prices without similar motivation. In '04 and '05 many people sold to make money, not because they HAD to move. It is for this group that the "bubble" has burst. Life drives our market and unless you've heard differently, life hasn't stopped yet.

Greg K,

I don't really want to pick a representative who shares my outlook on the market, just one who understands and respects my viewpoint rather.

I think that the real estate market is driven by a lot more than "life" (unless you believe that life sped by about 6x between '00 and '05).

No condescending "applause" or "congratulations" necessary.

Greg,
I agree with you. Listen, all of you sitting on the sidelines. Sellers are desperate to sell. If you want a 10% reduction--ask for it. Don't wait--waiting does nothing for the sellers or buyers because no one knows what waiters are thinking. DO something. See a house you love? Make an offer. Set the price--be pro-active about it. Why wait a year to get another 3% off the price? Plus, the interest rates are fairly low now. I'll bet you'll get what you want plus some. Maybe money to cover your closing costs, a new TV or a brand new washer and dryer? Meanwhile, you'll help move inventory as well, contributing to our economy which is good for everyone, including yourself. (ps the latest buzz from my real estate agent friend is "to hold steady on your price". In contrast to this summer when it was "drop drop drop your price"). Anyway, people need places to live. Prices will NOT come back down to 2000 levels.

Proactivity,

Why won't (inflation adjusted) prices return to 2000 levels? Like John K, you are making unsupported assertions. I really would love to see a reasoned argument defending your position.

HI Dan,
Well prices climbed-what?-150% between 2002 and 2005? They are only dropping 10% at the most in some areas and only 3% overall. Do you think that house prices will fall 140% in a year or two years? I can't predict the future so I do not have a "supported assertion"--just an opinion--which is just a valid. Fact is, people are still buying houses at these prices, especially in places like Newton and Brookline. Our neighbor just sold his house for $810,000! (gasp) I do think house prices are high but the mentality has shifted as well. I bought a 2000 sq ft, 4 bedroom house outside of Atlanta in 2000 for $154,000. Now when I see that price I automatically think "must be a dump!". Too many people bought at high prices and therefore property values have "changed." No one is going to sell their $500,000 "valued" house for $200,000. Furthermore, 90% of foreclosures were in very low-income towns like Lawrence. That will not affect prices in high income towns. People who buy in high priced areas do not need subprime credit. Thus, houses are still being sold at very high prices. Maybe people want to keep out the riff raff from their neighborhoods? Who knows- but I think that lower income families will buy in towns where the median price is around $250,000 like the south shore area and will pay those prices because again, the mentality has shifted. I hate my mortgage but love our house and neighborhood. Can't have everything perfect--whatever. It's only money.

Supply and demand, not the desires of sellers, determines price.

We just moved to the area from the midwest. Your market has been somewhat inflated but prices almost always tell you something about value. We just purchased a beautiful Victorian across the street from the ocean that was orginaly listed for 1.4 million for about $850,000. We own homes in Greece and Mazaltlan and our Boston property is by far best bargain (and our favorite property). Stick with the basics, no matter what level of house you can afford. Buy the best location at the best price in a declining market and you will always come out ahead. You have a great place to live, real estate still has great tax advantages and over time the finances always work out. The quality of life in Boston also adds a great deal of value to your real estate purchase. If you don't believe me, I have some great real estate deals for you in Minnesota!

It seems that discussion of real estate are more like discussions of religion than thoughtful discourse. From the above posting:

"I will ask you, when something increases 80% and then decreases 10% isn't that a net increase of 70%?"

This person does not understand percentages. Something that increases 80% and then decreases 10% DOES NOT yield a net increase of 70%.

It also shows that it is not worth arguing with somebody that failed elementary arithmetic. I sincerely hope this person is not a realtor, because who knows what other mathematical deficits he has.

"Tell me another form of investment that has grown 70% over a 10 year period."

The above demonstrates that this person has not bothered to search for historical price returns of asset classes, and needs an education in basic investment. For two examples, here are many equity and debt asset classes that exceed those returns.