Case-Shiller: Boston down 4.6%

Its Accelerating and now people are REALLY scared to try and catch the falling knife. Here is the problem the way I see it. We need first time homebuyers to enter the market again. It all starts with them. They enable the people who bought the condos, small ranches and capes to buy bigger homes for their growing families. They have all but dissapeared since August. Most first time homebuyers were buying with far less than 20% down more like 5% or 3%... those buyers are now underwater by 10% or more. The FTHB's who are still on the sidelines see what has happened to their friends and family members who bought in the past 3 or 4 years and are going to wait.
Starter homes need to come down more its as simple as that. Keep renting for $1,100/mo rather than buy a $350k house and have a monthly nut of $2,700 on something that very likely will be worth less a month later...
Again PMI is expensive now that piggyback loans are dried up....
I think they will and should wait.

I find much more value in the Warren Group's numbers than in the Case-Shiller Index. I think only using resales of the same properties limits its usefulness in the real world. Plus, they only include single-family homes; is this practical, in today's world?

More data to help people make educated decisions is always good, of course.

The "bright" note you refer to Binyamin is exactly what I stated last month and was accused of providing a misleading bright note when comparing Boston to major metropolitan areas so needless to say, I agree. My evidence on a daily basis remains empirical, I'm not sure where others stand.

Further, if Boston could be isolated into specifically downtown Boston and downtown New York (Manhattan) could be isolated from its suburbs on Long Island and New Jersey, you'd find increases in both cities.

I'd like to think the moral of the story here moving forward is that when you or others here in your blog write about the "Boston market" that they recognize there are micro markets.

Dave is right one the money ( previous post) about 1st time buyers. The reality is that prices are still very, very high. Theres just not that many people or couples bringing home 200K a year.... The one thing ( which kills me) that no one wants to come out and say is the Homes in MA are all over priced.. Forget the rates, its the principal price that really matters... there are hundreds of thousands of people that bought in '04/05/06/07 that are in IO/ARMs.. When the Fed finally starts cracking the whip on inflation and raises rates ( more aggressively after the election) and the LIBOR also jumps its going to be catastrophic from an equity standpoint.. The reality is that home prices in All towns were propped up 50-150%depending where you are. If you didnt put down 20-30% during the bubble any equity will be gone.. Until this comes back down, then this news will only continue. My wife and I who are renting right now on the sidelines, are waiting until mid 2009 or even later.. My research indicates this is just getting started. Sit back and enjoy the show. Its going to be very ugly when it final ends...

The headline number of a 4.6% yearly decline masks a very interesting price pattern. From January to October 2007, the index was actually up fractionally (about .6%). Starting last October, when the closings since the credit crunch in August started hitting, prices have been on the decline. The change from the previous month, from October to February 2008 are .82%, 1,15%, 1,68%, 1.22%, 1,40%. The total change in those five months is 5.3%, or about 12.8% annually.

Believe iit or not, some of us actually want to buy a single family home and not a condo. The S&P/Case-Shiller Index is much better for that case. With the Warren Group's data, how do you know that $400K didn't buy you a shack last year and a mcmansion this year? The S&P/Case-Shiller index captures shifts like that.

Boston is now over 12% below peak prices.

It is particularly interesting to note the rapid, record-breaking acceleration of the decline. Paper Economy, as always, has interesting graphs comparing this downturn to the last one, during the late '80s and early '90s. This decline is much sharper and faster so far. It is also only two or three years old, while the previous down market lasted about eight years.

http://paper-money.blogspot.com/2008/04/s-february-2008.html

We can peruse these charts while we wait for MAR to release its much-anticipated "Index That Only Tracks The Homes That Went Up."

#1 Is Exactly Right. The last couple years of FTHBs that bought, bought because they thought they had to buy. Even at rediculous prices. Now we all know that houses can go down. People who buy single family homes typically are families iwth children... House prices go way too high for families to live in Massachusetts comfortably. Add in insane child care costs and not to mention Retirement savings or College savings...... and you cant own a home and make it here even on 100k combined incom. Housing will be down for a long time. Banks will not lend out any more crazy loans. Thats what fueled this last run up that and the fload gates were opened up to let people who had no business ever owning into the market within a few year period which spiked the demand. Builders then created more units and houses to meet the demand then when financing dried up and interest rates went the other way on people and gas prices and food prices skyrocketed well we get to where we are now.

FTHB here. Been looking to buy a house for awhile, but even though I've found houses I like, why would I buy them now when they, or similar houses, will be available for cheaper 3, 6, 12, or even 24 months down the road? We are in a position where we do not need a house, have a beautiful apt that's under $1000/month, and can afford to wait. I get MLS listing updates on the towns I am interested in, and most days it's around 4 listings, with 3 being price changes and 1 being a new listing. Today had 8 listings and 6 were price changes. Some of these price changes are on properties yet to be built. All of the changes are lower, of course. Between my wife and I, we make 100k+, but after taxes/retirement/etc, that doesn't go so far, and goes even less when trying to buy overpriced housing.

Why is it better that prices aren't coming down to reasonable levels? There was a pricing bubble. That's uncontroversial. Why should we hope to prolong the bubble? The sooner houses become affordable, the sooner the housing economy will start moving. We need some money to be changing hands, and it won't change hands until buyers are able to afford what's for sale. It's better to have a functional economy with honest pricing than a stagnant, inflated one. I know that's no salve for people in overpriced houses, but it's reality. The only road forward is to be honest about what things are worth.

First Timer Here as well. We also live in an apt for $1,100/mo that includes heat. We are 26 and 27 and make about $110k combined and have waited to see what the mkt does. We started looking in late Feb but every month the news gets worse and worse. We looked at houses in the 340k-375k range and now they are down to 315k to 350k... nice drop but we need to have them come down more before we pull the trigger. 110 x 3 = $330k home price... But I have a feeling that prices will go much lower so we will wait. I think we could see some homes that were listed for 400k in 2005 sell for high 200's end of this year of in 2009. If we can get into a house we loved for $275k we would buy today... they just havent fallen that low yet.

Compare rents to owning. If the majority of FTHB's can swing lets say $1,200 in rent that equates to a mortgage of $200,000. Now obviously owning will cost more than renting, but how much more???

If your in the 25% tax bracket you can have a mortgage payment of $1,600 be the equivelent after the deductions of your rent ($1,200). $1,600 mortgage would enable you to borrow $267,000 to buy a home. Then you would need to add in PMI if you dont have the $55k for 20% down. That might be $140/mo. Then add in Real Estate taxes at $350/mo, after that deduction lets say $265/mo. $2,090 outflow a month but after the tax breaks at 25% bracket its like $1,605/mo

$2,090 x 12 = $25,080/$110,000 = 22.8% of gross income goes to housing. Thats good especially compared to some people in Mass who borrowed so much that they spend up to 40% of their gross income on housing.

Bottom Line, Housing will continue to go lower untill folks like me buy and I think we are all waiting longer.

Bobby is right on. Greater Boston's real estate ballooned by just as much as other markets that have now seen double-digit declines. Having our prices deflate more slowly may be a "bright point" in the short term to current homeowners, but for anyone with a longer-term outlook, or for anyone who's been waiting to buy for the first time, down payment in hand, it's bad news. I don't want to be renting at this point, but prices are still inflated enough that to purchase now is to risk losing the bulk of my equity in the first few years, even with a 20% down payment.

i'm a FTHB with $350K salary and 200K for a down payment. i'm going to stay on the sidelines until the price drop is over 20%, maybe even longer.

Just getting started: "The one thing ( which kills me) that no one wants to come out and say is the Homes in MA are all over priced.. "

Huh? Everyone knows housing in MA is overpriced. That's why people are leaving the state in droves. It's way to expensive and there are far better opportunities in other parts of the country. I laugh at people who try to raise a family and make a living in MA. It's just not worth it.

Chris, with a 350K income don't anticipate that prices in affluent communities will drop considerably. Usually it's the tertiary/fringe low priced neighborhoods that go up last in a boom and are the first to drop in a bust. If I were you I'd look at prices of the downtown sub-markets. I don't see a significant drop on Beacon Hill, Back Bay or the waterfront. I don't know much about what Brookline, Newton and Wellesley are doing in todays market but historically they haven't lost as much as the media portrays about the overall market. The dynamics affecting the higher income/luxury market are completely different than those that are now in play with
the current market and the sub-prime meltdown.

"Warren Group reported February sales fell by 9 percent. Case-Shiller says 4.6 percent."

Binyamin: Are prices and sales both down 4.6 percent in February, according to Case-Shiller? Thank you for any clarification you can provide.

bosdawl, do you know what you're talking about at all? No, there has not been much decline in the 'prime' areas. But there will be. All areas became inflated relative to the household incomes in the area and therefore will decline. It's as simple as that. There is NO area that is magically immune to price declines just because 'rich people' live there. FTHB #13 does not need to take advice from you.

Home prices in exclusive areas are down from peak, probably 10%-20%. They might slide some more, who knows.

But if anybody thinks they are going to get a good deal on a premuim home in Newton or Wellesley on the cheap, you can forget about it. Dream on, brother. There is an awful lot of money sloshing around in those towns.

Remember, in Natick, the family that lives in the 800k home has it mortgaged 90%. In Newton or Southborough or Dover, the family that lives in the 3 million dollar home bought it with cash. These are different leagues of "well off" people.

I think Bosdawl is partially correct. I agree with Phil that no areas will be immune to the downturn, but in general, the more desired areas will likely not fall as much (in percentage terms) as the less-desired areas. The fringe areas are always the ones that go up last and come down first....very similar to the stock market...the lousy stocks go up last in a bull market.

take a look at the last downturn in the early 1990's. the "better" towns as mentioned above in fact did not fell as much as the other ones. I was in the market at that time hoping to score a 1 bdroom condo in brookline at bargain basement prices. Guess what? didn't happen. I ended up buying a 5yr old 2 bdroom condo in quincy for 1/3 of the brookline condo's price and even at today's price, had triple the value. I remember there were spectectcular bargains here and there. I remember I did a mortgage for a guy who paid $65k for a studio at Tremont on the Common (it's facing the back side though). But for the most part, the price drop stops when the mtg payment were within a couple hundred dollars compare to renting.

Take a look at Matt's calculation. If rent is $1200 for a 2 bdroom apartment, the mortgage equilavent would be around $140k including taxes, condo fees and pmi. Throw in 10% down would give you a sales price of about $155k. This is not counting any tax benefits one might consider, as well as the psychological effect and perhaps the truth that your rent might go up next year and the year after next...

Of course, you cannot expect your mortgage payment for a single family home will be equivalent to the rent of a 2 bdrm apartment.