Home sales, prices, fall sharply

I'm lighting up the candles and incenses for this to go down further so I could afford a REAL house ;)

The numbers in the above piece are off. The national association said sales rose 2.9 percent compared to January, not to February of last year. They fell sharply compared to last year.

Long and short is, Mass. numbers are not worse than the national numbers.

Right you are. This is my punishment for not reading industry press releases with greater care. I've updated the post. Thanks for the assist.

Same here. Last time I checked, it still takes half a million to get that little shack by the side of the road.

But interest rates are at historic lows and my realtor is telling me now is a great time to buy because we're at the bottom and the only place to go is up? ;-)

Like ni, I am hoping for prices to continue to drop (but also for banks to give loans to people like me with excellent credit!) so I can purchase a townhouse this year at a price that is more reasonable than they've been for the past 6 years or so!

When you lose your job you will not be buying a house you'll be scavaging in garbage cans for food.

Watch out what you wish for.

Maybe once this spring season turns out to be a bust, sellers will finally realize that real estate is in a bear market and the only way to sell their home will be to drastically reduce their price. Couple this realization with the global credit crunch and home prices have no where to go but down. The fact remains that home prices in Mass are only down 10 to 15% since the peak in 2005, so they will need to fall (or incomes need to sky rocket) another 30 to 40% just to get back to the historical income to price ratio.

Glad that prices are coming down, but the problem now is that lenders are so shellshocked that they won't lend to anyone with anything less than absolutely perfect credit and a huge down payment.

Like the first person to comment, I am hoping for prices to continue to drop (but also for banks to give loans to people like me with excellent credit!) so I can purchase a townhouse this year at a price that is more reasonable than they've been for the past 6 years or so!

Good I'm glad. My neighbors paid $450K to live in Halifax...HALIFAX !!! Almost half a mill?? When I heard that, I knew the market was done

Unfortunately, I don't see any correction. It still says prices fell compared to "the same month last year" where as another article on Boston.com says:

WASHINGTON—After falling for six straight months, sales of existing homes posted an unexpected increase in February which may have reflected more aggressive price cutting by sellers in some parts of the country, a real estate trade group reported.

Andrew,

Both are correct. Sales and prices fell "compared to the same month last year." The other article you're referencing is reporting that sales (but not prices) rose "compared to the previous month."

Just bought and took a higher interest rate while hoping that 30yr rates drop below 5.5% so I can refinance ...

ni and Linda- Do you really think that if prices continue to fall the banks will make borrowing any easier? Qualified buyers with 750+ credit scores are getting turned down now, even with 20% down.

MAR numbers for Feb 08
February single family home sales crashed 22.9% on a year-over-year basis while condo sales collapsed 34.6% over the same period.

Further, the single family median home value declined 4.6% on a year-over-year basis to $310,000 while condo median prices decreased 6.7% to $252,000.

Interesting that the MAR numbers are actually lower than the Warren numbers. Is Warren still including foreclosure sales in their reports?

Bob, as prices continue to fall, that 20% down payment will become a 25% down payment, then 30%, and so on. Falling prices make the down payment a bigger percentage of the price, and the interest earned in the meantime also makes it bigger. I would say banks who are turning down qualified buyers with 20% down are doing them a huge favor. If lending is going to contract even further, as you say, then prices will certainly fall further and those with down payments will have much sway.

Bob -
You seem so advocate about higher price homes, do you have a house on market? As your logic go, it is okay for house prices to go up as long as banks looses lending standard to approve more buyers. Isn't all that came down to what we see now?

If banks don't lend money, good! It means the house price would even go down further to the point that I don't have to borrow money from banks.

Brian C,

Warren numbers no longer include foreclosures.

We haven't seen the final MAR numbers yet, but it's certainly noteworthy if they're tracking worse than the Warren Group numbers.

Binyamin, the MAR numbers were below the Warren Group's last month too. That's when The Warren Group changed their methodology, so it's probably attributable to the switch.

If you are first time home buyers check out the state program and check what your city may offer don't forget FHA and the new Fannie Mae guidelines. If your score is 700 you should have no problems getting a loan. Well priced properties are selling sometimes with multiple offers and over list price. It's all about value...buyers are pretty sauvy especially with the help of their buyer agent and know when a property is priced well.

Anon,

That's an interesting point, but I don't understand why sales involving real estate agents should be tracking lower than all sales. In general, we see the opposite trend because sellers are more likely to use agents in down markets.

Huh? Prices would have to fall another 30% from where they are today for that 20% down payment to become a 30% down payment. Yeah, we should all look forward to that day! (sarcasm)

I believe the MAR numbers include short sales and foreclosures, where the Warren numbers no longer do, which is why the MAR numbers are tracking lower than the Warren numbers.

I don't believe that it is correct to remove the foreclosure numbers. Warren claims it skews the numbers and doesn't accurately reflect the current market environment. But if the current market includes a high number of foreclosures, then that IS the market, and they should be included!

The Case-Shiller index is truly the best gauge of where home prices are and where they are going. Based on the most recent numbers, it appears we have another ~20 to 30% to go before we have returned to historical norm (assuming the market doesn't overshoot, as it often does, which mean we have further to go to the bottom).

A house I was looking at just sold for asking ($435K) and the buyer only put down 10%. At 6.0 that’s $2300/month I guess things aren't as bad I believe or there are people out there still fooling them selves.

Bob, a few things:

1) A 30% fall would indeed make quite a few people better off. Think of the children - I know it's cliche, but it really applies. When you include future generations, housing which is more affordable helps far more people than it hurts. I am absolutely looking forward to that day.

2) You forgot to factor in the interest on that saved down payment when doing the math. Price declines aren't the only thing that help increase the down payment.

3) Your "Huh?" makes it sound as if you think a 30% drop is completely far fetched. Why is that so far fetched when prices doubled over the course of 5 years or so? There is plenty of room for a fall well in excess of 30%.

Dealio,

Neither Warren nor MAR includes foreclosures. To be clear, both groups include the resale of foreclosed homes. What they do not include is the transfer of foreclosed homes from the owners who defaulted on the mortgages to the companies that holds the mortgages.

As I've written before, I can't imagine a good reason to include these transactions in sales data because they are not sales, and because the recorded "price" is a technicality -- an artifact of the outstanding debt.

I do agree that the Case-Shiller data is the best available, but of course we get the Warren/MAR data much earlier than the Case-Shiller data.

ni-
That wasn't my point. "Loose lending" as you call it started this whole mess, which now seems to be spiraling... The pendulum has swung so far the other direction that it's difficult for some qualified buyers to get a loan.

Thank you Binyamin, that makes sense. I agree that the transfer from the defaulting party to the bank should not be counted. I misunderstood that when not including "foreclosures", it meant they were not including the resale of the foreclosed home.

Could the exclusion of short sales explain why The Warren Group's numbers are higher than The MAR? I can understand the rationale for excluding foreclosures, even though I don't think I would take the same approach, but what is the reasoning behind excluding short sales?

Anon,

The Warren numbers include short sales.

Since at least some of you share my interest in the finer points of this data, here's a breakdown of what the Warren Group includes, (with a few explanatory notes in parentheses):

-Arms-length sales, (which are your standard transactions).
-Short sales, (at a price below the outstanding mortgage debt).
-Resales by lender after foreclosure

Here's what's not included:
-Nominal sales (for example, adding a new spouse to the deed)
-Foreclosure sales
-Intra-family sales (for example, selling the house to your child)
-intra-corporate sales
-Multiple-parcel sales
-Partial-ownership sales
-Low-price, high-value (meaning the price is less than 70 percent of the assessed value, indicating a probability of a non-market transaction.)

Think 30% is outlandish? Check your facts. Merrill Lynch predicts home prices will fall nationally an additional 25-30% over the next three years.

Anyone complaining that a popping bubble will hurt the economy should have made noise while it was inflating.

That's a good start. But housing price is still way out of line. Medium household income from census data is $59963. Medium price is still 5X medium income.
It will be good if the bank start demanding 20% down payment again. And because people are too stupid to think for themselves, there should be a regulation to prevent people from taking a mortgage (based on 30yr fixed) that is more than 35% of their gross household income. So, if they want to buy a bigger house, they will have to have a bigger down payment.

With inflation running rampant, I don't see how the current housing price can hold up.

Those of you who salivate at the thought of home prices dropping another 30% (which I agree they need to and possibly will) should temper your enthusiasm with the following unpleasant knowledge: lenders, shellshocked by numerous defaults, would give fewer loans, and the loans they did give would necessarily come with a huge cost. The vast majority of borrowers would no longer qualify for an affordable mortgage. Sure they'd be able to get "a" mortgage, but the dramatically higher interest rates they'd pay would offset much of the depreciation. Googling 'historic mortgage rates' bears out the fact that paying 15-20% on a mortgage is not entirely implausible, even for 'good' borrowers. I'm sure some of us remember the early 80's. In addition, this degree of loss in the average American's primary source of savings would destroy the overall economy, locally and nationally for at least a generation. As such, many would possibly no longer have a reliable source of income ( or an income at all). The very rich would benefit immensely, as ever, but bargain hunters would be at the mercy of forces much larger than them.

Bob,

If banks won't loan someone with 20% and very good credit the money to buy a particular house, then they probably believe it's a bad deal--that the house price is too high. They must be concerned that the house's value will drop further and that the person buying will wind up "upside down" in the mortgage and walk away.

I do not have access to the price breakdown by geographic area. However, I would be surprised if Brookline, Newton, etc,... are seeing these dramatic price adjustments. I suspect that the largest changes are happening in some of the more outlying areas or reflect price drops of higher priced homes, that are still may be quite expensive. As has been previously discussed in this blog, even locally, the market is heterogeneous.

Joe Dirt, the economic destruction you describe would be the result of Americans not saving properly. A house is a depreciating asset, not a savings vehicle. You may very well be right that this will take a generation to learn, just like it did in Japan.

I must say, though, that the picture you paint of the coming years being miserable has a missing piece to it. These last few years have been miserable for those of us who have been working hard, saving, and acting financially responsible. Our efforts felt pointless with credit gushing to anyone who could fog a mirror and flippers/speculators/etc reaping huge gains for doing nothing of consequence. If we must chose between where our misery comes from, I chose the type that encourages real savings.

Sure they'd be able to get "a" mortgage, but the dramatically higher interest rates they'd pay would offset much of the depreciation.

No.

Today's housing prices are not sustainable, period. There will be no trade-off making them equally high through higher interest rates (though those may indeed rise). There isn't the income. I cannot understand why it is necessary to repeat this point over and over.

Oh, and Binyamin: How can the Globe possibly justify reporting an "unexpected rise in home sales" on the front page? This is truly embarrassing, and does indeed make the paper look like it's trying to salvage RE advertising revenue.

I love how the NAR turns a huge loss into a plus. But, if you ever wondered why real estate agents twist the truth, it's beacuse they've learned the art of disception from their mentors. Congrats on a 2.9% increase.

Marcus,

For most of the day, the headline has described a price drop here and nationwide. You'll see in the comment chain that the first iteration reflected our initial misunderstanding of the NAR release. Such is life on the Internet: You get to see our rough drafts as well as our finished product.

Binyamin,

Thanks for the reply, but I'm talking about what's on the home page right now. It's the AP story that attributes the stock market rally to a surprise jump in home sales.

The AP is notorious as an easily-spinnable news service, and seems to have swallowed the press release whole. I do give you folks credit for presenting a corrected version, but the AP tale has currently nudged your story off the front.

GB,

"However, I would be surprised if Brookline, Newton, etc,... are seeing these dramatic price adjustments"

This is a myth is perpetuated by used home salesman like our friends from Lexington and the South End.

Fact, so far this March in Newton there have been five resales of homes purchased between 2003 and 2008. Four sold at a loss, 14%, 19%, 11% and 25% respectively.....

Hard Rain,

Wow! I know you can't post MLS numbers here, but is there any way to quickly see March sales for Newton?

Certainly, this is precisely the kind of statistic the Case-Shiller index should capture, and mere median price tracking can't.

Can you name the town, homebuyer? There is just no way prices in desirable towns fall much more. The demand is just to high for a AAA/ AA school system. As for towns with high taxes and less well off schools, your guess is as good as mine. Good luck to all. Were is Rona?

There will be blood.

I can tell you in Weston, assessments for entry-level homes have dropped ~8% from 2007-2008 after dropping ~5% the previous year. (Those figures are offset by the multi-miliion dollar homes where buyers don't care about value.) Of the entry-level homes on the market now, same house list prices have been dropping at an annualized rate of 14%.

Marcus,

Here is the breakdown of March sales in Newton including today. All data is pulled from the Registry of Deeds..

Total Sales: 24

Sales of 600,00 or less: 14

Sales over a million: 1

Total properties for sale: 331

Properties listed at over a million: 78

Take from it what you will....

In year 2000 you could buy a 1 bedroom condo in Brighton for $100K. Since then the prices went up to as high as $260-$270K for a one bedroom whereas the salaries stayed almost the same.

What are my options? Most people do not qualify for First Time Home Buyer programs due to their "high" income. Seems like if you are a couple with two incomes and with no kids no matter how much you make you are considered "wealthy" and would not qualify for most programs.

I am waiting since 2000 for prices to have the same ratio as before: 3-4 times annual income, but still I can not seem to afford a decent place. As my salary increases the houses double. I now pay $1400 for rent, but if I were to purchase my condo for the asking price of $340K I would have to come up with another $1400/month.

I still can not believe that people are paying over $300K for condos and hope for the best. Unless you have a stable income of $100K/year I would suggest you think twice. It does not matter how much of a loan you can get, at the end of the day the amount of money you can pay each month does not change unless you win the lottary.

Huh?? prices for a 2 bdroom condo in brighton is around $220-$250. 2 bdroom usually means there are at least two income earners paying for the mortgage. Need around $70k-$80k a year in income to be comfortably to afford the mortgage(with a 10% downpayment). $70k/yr between 2 wage earners is out of reach????

As for your scenario, you chose to look for housing in a pricey neighborhood (yes, brighton is pricey) and angry about not able to afford it. If you can afford $1400/mo in housing payment, you can afford a $150k mtg. There are plenty of 1 bdrm you can chose from in areas immediately outside of boston.