New England home prices slide

I'm surprised prices have not declined more. It's coming though. There are just too many negatives against real estate:

- too much supply and too little demand
- the on-going US recession
- the credit crisis (and the next wave of mortgage resets over the next few years)
- spike in food and energy costs
- slowly increasing interest rates which will only go higher
- declining stock market

I don't see how the market could possible find a bottom for at least another 3 years. Even many of the real estate industry cheerleaders are starting to say that a rebound is at least a year away (of course they also called a bottom 2 years ago).

This housing bill will have little effect. Real estate prices are going to continue to fall. This bill is like putting a band aid on a patient who's leg was cut off. This is just political rhetoric to make it look like the government cares about the people and another bail out measure for their buddies in the financial industry. And everyone of us will pay for this through the inflation tax.

That crashing sound you hear is the US dollar falling through the floor. God help us!

It was bound to happen. Wages were stagnant and real estate prices were extremely inflated. When that happens of course no one is in the market to buy a house. But you can't generalize Massachusetts - because.... location, location, location...

In some real estate markets in Massachusetts home values have remained relatively strong especially within the 128 hub. There's still pricing corrections happening between the 495 / 128 corridor, that's where the bottom has yet to show itself. Once that happens then real estate beyond 495 will price itself accordingly.

If you're on a commuter rail line - your home values will not go down as quickly as those not near the commuter rail line.

I agree that the housing bill is not going to help much. The bill is aimed mostly at reducing subprime foreclosures, but the housing issue is much larger than just foreclosures.

I don't know when the declines will end but I'm certain the recovery will be very gradual. If prices start to stabilize, then buyers on the sideline will start to enter the market. But then once prices start to go up again due to demand there are likely to be sellers who are also waiting who then jump in the market. So that increases the supply and keeps the price low. This back and forth will happen until the inventory goes back to typical levels, and who knows when that will happen!

Housing has a way to go yet to the downside. Ration of Median Housing Cost to Median Income in MA is still way above the historical averages.

The USD has been broadly stable since March and will remain so. Europe and Japan have economic problems of their own, they have just occurred with a lag. The USD will recover once home sales cease to fall which should happen in the early part of 2009. Let's try and be rational.

Wait till the 3 month MA foreclosure halt comes off, and all that supply hits the market on Aug 1... that will be interesting.

Why isn't the Globe just using the Mass Assoc or Realtors spin on this? This is the usual Globe procedure as their reporters are too lazy to do any research.

Interest rates are going up. Prices must come down.
Bank lending standards are up. Prices must come down.
Inventory is up. Prices must come down
People are losing their jobs. Prices must come down.

Boston area will experience a 30-50% drop in prices from 2000 highs which means at least another 20% before mortgage payments are no more than 28% of salary and the rent to own ratio is back to a historical standard.

I'm weeks away from becoming a seller myself, so numbers like this scare the beejeebees out of me.

BUT then I remember: Housing skyrocketed way beyond what was considered "normal." Our house is in Cumberland, RI and we're planning on putting it on the market for 259,900. That's almost 45,000 less than our house was appraised for in the Fall of 2005.

Of course, we bought our house ten years ago for 170,000. Even if we have to settle for 245,000, that's some profit. I won't complain. If we deduct the $40,000 we put into the upgrades, that's still a $35,000 profit. It was a place to live, a place we called our home, a place where we entertained and took shelter from the storms.

We never thought of our home as an investment. We thought of it as our home.

Margaret, you can't just look at the price you paid and the price you sell for and say you made $35,000 profit. That works for stocks, but not for real estate. You have to look at your total cost of owning the home (PITI, downpayment, maintenance, taxes, etc.) over the entire period you lived there to figure out if you will truly turn a profit. I suspect if you run the numbers, you will find that your $35,000 in profit was eaten away by interest, taxes, maintenance and insurance.

Note that OFHEO numbers do not include any houses financed with either funny loans or jumbos; they only track straight conforming. So the worst performers are picked out of the bushel before the data is even tracked.

The housing bailout will do nothing but waste money, especially relying as it does on "voluntary" lender cooperation.

Here are the latest events to hit the housing market:

1. Mortgage rates are shooting up. Perhaps the bailout and promised backstop to Fannie and Freddie will help this somewhat. Perhaps not.

2. Bank casualties mount. More are reporting losses, estimated by Bill Gross to top $1 trillion before this is all out. The entire banking system is now running on air.

3. No more sham no-down-payment programs; one of the good things to come out of the bailout bill, but doubtless another short-term hit to the market

4. REOs are piling up--about $16 billion in houses so far. They are going back to banks about twice as fast as banks can sell them.

5. Data are mounting that the recession is spreading. Job losses are growing.

Fitch ratings today said it expects houses prices to decline another 25% in real terms over the next five years. That's not total decline. That's just from here on out.

Joshua, of course the dollar has been relatively stable. It's value does not drop in a straight line. Until the FED raises rates significantly above the rate of inflation, the dollar has no hope of rising beyond the occasional bear market rally. Even then, there's the nasty little detail that the US owes it's citizens and the rest of the world over $55 trillion. Not exactly bullish for the dollar.

How do you think the $300 billion of this bailout is going to be financed? Why, by printing more dollars. You do know that inflation is an increase in the money supply? You do know that when there are more dollars in circulation, the value of each dollar drops; it takes more dollars to by a given quantity of goods?

All fiat currency is destined to be destroyed. And for now, the dollar is on the fast track to destruction.

Got gold?

Marcus, are you sure that's not a 25% nominal decline? Even using the government's bogus CPI number of 3%, that's a 15% decline over the next five years in real terms. If you use the pre-Clinton methodology of calculating the CPI, which shows we are up around 10 to 12%, real prices are falling through the floor.

Steve I think you missing one other point when Margaret tries to determine her profit. How much would she have paid in rent over 10 years? Even an average $1k a month ends up being $120k over 10 years.

Also the foreclosure halt won't hit in August, once a bank forecloses, it takes a while to evict the owners, clean the place up and put it back on the market. Depending on the bank, anywhere from 3-6 months.

Gold is a fiat currency too, of course. It is a bit of a counter-cyclical one which can make it an appropriate hedge..

I note the headline in the globe "Boston condo sales slide 15%" which doesn't exactly gibe with the comments on here that "everything is fine in the Back Bay and the South End"

Nor does this seem to back up the over-fixation on "all real estate is local"

We're due for another 30% drop in nominal terms by some crude metrics. More, of course, in real terms. I used to think we'd be done with this in the late summer of 2009, but now I'm not so sure - sellers are taking longer to resist reality than I'd projected

Steve - I disagree with your statement to Margaret. It is not just about interests and taxes. Remember, she had to live somewhere. the interests and taxes are offset by the rent she would have to pay. Also, owning a home also provides a measure of increased quality of life. If that quality of life was to be rented, then the rent would be higher than the normal renting of a house/apartment.

Not an easy comparison to make.

I do not think it needs to be all about numbers.

I can afford to buy a home for $350k comfortably and thats my self imposed limit. I am not going to buy however. I truly believe that I will be able to buy that same type of home for $285k by Late 2009 or early 2010. I suggest other first time homebuyers to do the same.

"The USD will recover once home sales cease to fall which should happen in the early part of 2009. Let's try and be rational."

Right.....except, of course, if you happen to be trying to sell a home that is heated by home heating oil at nearly $5 per gallon, or have a mortgage that has turned upside down and you're in year 3 of your 5 year ARM and have a Fed chief that at some point will have to raise interest rates to try to hold down inflation and encourage the public to save, or are trying get obtain a mortgage with a credit score of less than 800, or are planning to vote for John "I really don't know that much about economics" McCain.

A rescue bill is just window dressing for pols to say they're actively doing something.

Water finds its own level and so will the economy/real estate. But we still have a ways to go.

why shouldn't a financial investment be about numbers?

People should get emotionally attached to people, not things.

he262

Over 10 years, Margaret paid roughly $90,000 in interest alone assuming she put down 20% and her interest rate was 7%.

My point was not that renting made more sense the buying, because the fact is in 1997, buying probably made a ton of sense.

My point is that you have to look at your total carrying cost for owning the home, you can't just look at the buying price and the selling price.

Let's say you buy a home today for $300,000 with a 30 year fixed rate mortgage at 7%. At the end of the 30 years, you will have spent roughly $950,000 in mortgage payments with the tax savings. Assuming the home appreciates at an average of 4% a year, the home would be worth roughly $975,000. Most people would look at this and say the made a profit of $675,000 which is simply not correct. That is my point.

Charles, fiat currency is money that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves. Gold is that backing.

MK, I agree that home ownership is not just about numbers. But Margaret's post was talking about the "profit" she made from being a home owner. I've always believed that a home is not an investment, it is a roof over your head. If you must think of it as an investment, than at best, it is an inflation hedge.

I suspect that by the time this bust has fully played out, a home will once again be viewed as a roof over your head and not as an investment.

gold also has little intrinsic value. Most of its value is psychological, just like paper currency. There are arguments for having a gold backed currency, but inherent value is not one - yes, its decorative, and shiny, but so are Fashion week dresses - why not have a dress backed currency?