2008: Most Mass. foreclosures ever?

Sorry, you'll have to hold your pity party somewhere else. Property values should be punished.

I saw this train wreck coming a mile away and sold my three properties (primary residence included) in early 2006. At the time, my investor buddies told me I was an idiot, as they continued to accumulate property after over-priced property. Now, they're peeing their pants, asking me what to do. "Get yourself a time machine," I laugh.

Boy, it sure feels really good to be on the sidelines, watching the carnage, waiting to pounce.

As bad as these numbers are, on both the personal and economic levels, Greater Boston has not seen the tsunami of foreclosures affecting other parts of the country. A quick check at Yahoo's RE site reveals some jaw-dropping numbers:

Boston MA: 55 foreclosures
Wellesley MA: 6 foreclosures
Lawrence MA: 161 foreclosures

versus

San Diego CA: Over 7000 foreclosures
La Jolla CA: 55 foreclosures
Phoenix AZ: Nearly 10000 foreclosures(!)

The two big questions this raises are:

1. Will Boston area foreclosures will remain as "contained" as they have been?
2. Will the crashing housing market elsewhere make it difficult to retain/attract people to Boston/New England, causing a ricochet housing crash here too?

The truth is the bubble wasnt as big in Mass as other areas. The Mass economy was never "RE-centric" as other parts of the US. The Mass economy has a relatively diverse set of tech jobs, education/college, financial, medical, etc..

Real Estate prices, with no doubt, became too high in the region. But home prices relative to rents did not reach the absurdity of places like Southern California. Consider Las Vegas, where everybody was either building homes, selling homes, refinancing homes, or decorating homes; such an economy is completely unsustainable.

Unless RE prices drop radically (thus making walking away more appealing), or unless there is major weakness in the job market, I dont see a the numbers of foreclosures in Mass hitting California levels. But of course, given that we are in a deflationary environment, the number of foreclosures will rise and this should surprise nobody.

Those 1,660 properties will take forever to get off the market because getting any response to a bid on a REO property is like watching the grass grow.

I wouldn't be comparing Wellesley to Phoenix, for goodness' sake, on size alone.

But indeed, the contagion is spreading. There are two foreclosures in my old neighborhood--one of the most desirable in Cambridge. Such a thing would have been unthinkable two years ago, when we sold. Properties were just too desirable, and a distressed seller had many options.

Last night I spoke to a friend going through a divorce. The situation requires a refi--but the best available rate for a single professional, with good income and no debts other than a house and a car, is over 8%.

Not pretty.

Do not buy yet, wait and watch, it's gonna be very bad.high oil prices and falling dollars , guess what next,,,,

Take a look at the credit suisse graph of arm resets. We should be due for another wave of foreclosures in a few months as people get shocked by the march reset peak.

There is some predictable ugliness coming.

All markets have their target customers. From 2004 - 2006 during the peak of the real estate season, the real estate market catered mostly to a different kind of people, personality and financial status.

Right now the market is changing and not only is it changing in property value but it's changing in its target markets. I believe the type of people who buy properties are changing to include more investors and the financially disciplined. We will see more real estate investment companies started, more low income families getting houses, the decrease of rent in metropolitan areas such as Boston.

I liken it to a an expensive department store having a clearance sale. The typical people who shop there are not the ones you find at the front of the line at 3am. Its the people who hardly shop there and realize that this is too big of an opportunity to miss.

Right now there are more qualified homebuyers than there ever was in the last 10 years just because of the drastic reduction in property values. That $1,000,000 house I couldn't qualify for in 2005 is now worth 500,000 and I can more than qualify. And as it is right now rent hasn' gone down. which means more rental profits.

Buyers are cold because the majority of them are first time homebuyers and are very scared because of all the news about foreclosures. It's not that they can't qualify it's just that they feel like they may end up in the same trap. Thats when I explain to them the people who are facing foreclosures bought their houses in a different market from where they are now. They bought it in the Real estate Department store, You are shopping at the Real estate Yard sale.

@ Middle, "home prices relative to rents did not reach the absurdity of places like Southern California."

The first house for sale on my street this spring was a $2+ million dollar foreclosure in a very nice neighborhood. I compared the cost to purchase to the cost to rent. It was 50 percent overvalued by this measure. That does match SoCal imbalances.

Sourballs-

I wish we could be as smart as you, pretty arrogant, dont you think? ( that is not a retorical question )

SunnyJim - It is my understanding that cost/rent ratios in major California metros hit levels above 2:1 in 2006. Boston and its metros were closer to 1.5:1/1.6:1.

Im curious how much that 2-million dollar home will sell for at auction. Mansions up for auction is really a new thing. How many million dollar home buyers are waiting for this opportunity? None? Hundreds? Let me know when you get the results.

@ Calvin, #8:
quote "Buyers are cold because the majority of them are first time homebuyers and are very scared because of all the news about foreclosures. It's not that they can't qualify it's just that they feel like they may end up in the same trap..."

Right on, at least for me. We have a baby, and want a house like never before now, but I worry that what I want is still too expensive/overpriced and I should not reach for it lest I end up laid off (as I almost was last year- many jobs moving out of state) in a year or two and unable to pay if we have a mortgage substantially more than my rent is now ($1500).

A few months ago, I would have said I'm buying a house this year. Now I think I'll wait a year, increase my down payment, and see how things are. The problem is I'm also thinking I might just buy a less-expensive condo, again because it will be more affordable than a house in future should something go wrong.
Then I don't know if I'll be able to sell a condo in a few years if we make more and want a house...

so do I reach high, or play it safe & be stuck with something that's less than we want for a while? Or not buy anything for a few years? I guarantee you there're others in my position, and are hesitant.

The reality is prices are all over valued. There are many persons that bought pre bubble, didnt pull out equity and are financially sound. Its those that bought in the last 4-5 years that could be in serious trouble... Houses are not like stocks (although people looked at/treated them this way).. It takes time for things to unwind.. The question for buyers on the sideline ( which is my wife and I) is finding a bottom.. No one wants to sell at a loss... However, the smart ones will cut prices & sell now to get what they can before it gets worse and prices do come down another 15-20%.. Its going to happen.. Just a matter of time.. If you put the puzzle together, its going to get far more worse before it gets better... Think 12-36 months to get all of it washed out. And yes, this is in Boston and the suburbs....

@ Middle, "I'm curious how much that 2-million dollar home will sell for at auction."

Most of the foreclosed properties I've seen are sold as listings, not auctions, and this one is no exception. It looks the bank priced it at the loan amount. Word is it sold at a 10 percent above list, but it's too soon to confirm that. My wife was shocked when she saw the initial price and predicted that it would be snatched up in days -- she was right. Price per square foot wise, it's a chunk lower than other premium properties on the market. It was suspicious enough to Google the property and see that it was in fact in foreclosure.

That's one lesson from this house and this market -- always Google the street address with the keyword "foreclosure" in any property you'd like to know more about, or about recent comparable sales nearby. Without the Google search, there was no visible sign that this home was foreclosed, and of course that's just the way the realtors and the banks want it to be. I asked a realtor about the pricing of a similar house, and he referred to the sale of this one -- I pointed out that it had been foreclosed, but he strongly denied that and insisted that "it was sold." I have know way of knowing whether he thought that all foreclosures are sold at auction, or if he wanted to deny the existence of a foreclosure of a nearby similarly expensive home at all costs. The only straight story comes from Google, even on April 1st.

@ Calvin. There are many *fewer* qualified buyers now than there have been in recent history, for three reasons. One, "qualified" is closer to its original meaning since no-doc, stated income and liar's loans are trickier to come by. Two, related, a good 20% of purchases in recent years were by speculators of various kinds. Only the ones who love losing money are still buying. Three, those of us who save, and kept our power dry in this collective insanity are waiting at least another 12 months, maybe 18-24, for prices to come down down down. A buyer's only a buyer if he buys.

I don't know about other first time shoppers, but I'm steering clear of foreclosures. I have no interest in picking up someone elses liens, or being put into a position where I have to find a legal way to evict the previous owners, or having to fix whatever vandalism the exiting owners perpetrated once the house belonged to the bank.

No thanks. I'd rather wait for normal house prices to come down so I can buy from someone who I'm sure wants to leave.

I am a soon to be first timer and I am waiting till the fall to see where prices are at and if i have to i will wait till 09. I have an eye on a house that is 370k I need it to get down to 320 or so.... it was bought in early 03 for $308k.... i figure 300-320k is reasonable value for this home. So I will wait and if this particular house doesnt come down to my "Strike Price" then I am sure there will be another house out there that will.

William, was there a sale of the home you are looking at prior to 2003? In 2003, we were already 3/4 of the way into the bubble, so using that as your basis could make for a very wrong valuation. A better valuation method would be to look at a sale price pre-bubble (assuming there was one), and then assume an appreciation rate of around 5% (which would be a generous average historical rate) to arrive at the current value of the home. The fact is, we just experienced the biggest real estate bubble in US history and we are only 2.5 years into the correction, so prices very likely have much, much further to fall.

Sunny Jim, I'd just like to comment that I feel that your comments to this particular blog post are particularly insightful and helpful. Your comments on the foreclosure, on Google, and the subsequent realtor's denial are particularly interesting. In case you'd like some affirmation, here ya go.

I just wish Boston.com had a way for us to rank up comments to give ratings-based feedback to commenters without adding extra text.

John,

I couldnt find a sale price earlier than 03 on MLS.... The reason I came up with 300k target is because he did a lot of updating to the house.... new windows, new kitchen, landscaping that sort of thing. So if he can get in and out of it for around what he paid for it i might have a shot. He must have put in 20-30k into the house over the past 5 years i think... Thats how I came up with the 300k target... But I am hoping to get it at 275k which I would deem as a good deal.

A fascinating tidbit apropos of this discussion from the paper-money blog:

"One novel data-point that Warren presented was a chart that essentially plotted the ratio of Massachusetts home sales to foreclosures which currently shows a startling near 1:1 relationship (i.e. there is nearly one foreclosure for every home purchased)."

P.S. Thanks DT. All I've learned in the housing market is to verify absolutely everything via Google, of course all statements made by realtors and their representatives -- and I mean all, but also suspiciously rosy "news" appearing in the MSM. That's how I avoided losing a lot of money in this bubble.

For those that are debating whether or not to buy a home...stop reading the paper. The purchase of a home should be just that....buying a HOME, not a get rich scheme in which you hold for a year or two and flip for a $100k profit. Spend some time, do your research and come up with a price point that makes sense for you and then search for a home in which you think you'd stay for 10-15 years. Real Estate prices got way too high, now there going way too low and at some point in the next 3 years or so they will even out and begin to appreciate in value again. A home is a long term investment and you should not worry that the value will drop over the next year or two, the prices will rebound and you will have picked up a nice place at a good price when you look back on it 10 years from now. They sky's not falling, the bubble is just bursting and returning the market to normalcy.

The foreclosures in Bradenton Fla. are 400 a month.
I live here now ...not happy and looking again in Boston area. I would wait before buying.That's my two cents.

William - you should look at http://www.zillow.com/ as well.
They have sale history, taxes & estimated price ranges for most houses.
They use Microsoft Map program to show you the house as well.

The American families place these banking institutions of greed in the same box with big tobacco and big oil.

Mark Twain - "A banker is a fellow who lends you his umbrella when the sun is shining and wants it back the minute it begins to rain."

What Common Sense?
If you loose your income due to the economy or accident, the homeowner and investor looses, not the bank. The bank will discounts the foreclosed property by 40 to 60% and pass that savings to the new buyer. So answer theses questions why don't they give that same discounts to the original homeowner? Now congress is promoting tax incentives to individuals to buy foreclosed properties at these huge discounts, instead to the original homeowner allowing them get back on stable financial ground.

Lenders do what they always have done, foreclose. Over the last 100 years not one bank has taken the lead to implement any positive procedure and or programs to avoid foreclosure. The same old programs still exist. There is no hardship or emergency program for any mortgage. We need reform. We need a (HOME PLAN) “home owners mitigation emergency plan”. This program allows the homeowner a real chance of keeping their home. I have more information on this plan .

I have been in the mortgage industry for over 26 years. I have seen a lot of changes over the years. I am a capitalist and believe in the American way of life. But to allow the American homeowners and businesses to struggle at the hands of these big banks screams for reform. It’s amazing that no one is talking about the huge amount of money that these banks made during the boom time.

We need to stabilize, secure and stop the wave foreclosures,NOW, before it unravels the entire industry and bleeds over into other industries and cause stagflation.

Thomas Jefferson- "Banking establishments are more dangerous than standing armies."

i Love everyones comments. The fact of the matter is, if you are not a real estate professional, and particularly, a well-informed one, you will have already missed the bottom when it happens. You will be in bidding wars with the rest of the average joes, who thought they were real estate savvy because they knew how to read google headline news.

Bad news sells, which is proven by the fact that everyone has an opinion about what they no very little because theyhave what is ussually very raw stats. If you are a first time homebuyer, consider what buying a home at 8%, for 220,000, or buying a home for 6% at 270,000, and then start thinking. Rates will go up in the next couple of years and you will find yourself looking for a time machine, trying to get back to a time where sellers were willing to negotiate.

Listen to the women about what a home really is, a HOME! a place to raise your children and enjoy your family. The media has created all of these real estate entrupenuers and headline economists, im not trying to be rude, but if you can afford a house where prices are at now, and don't believe anyone who reads an article or two, talk to a local professional you trust.