The Fitch forecast for housing prices

Well, I've been posting that I think prices will drop for years, haven't exactly seen anything to change my mind.

I think 2001, before Greenspan opened the taps, is actually more likely than 2003. And the level of overshoot is very difficult to predict, but traditionally has happened.

I'd been tentatively thinking August 2009 as bottom. Still might be the case - we'll know it when we get there. Same metrics and math I'm always pushing still apply.

Of course, maybe Fitch is just Marcus and myself under another name, and should be ignored as part of the usual suspects cabal....

People continue to forget a very critical issue. It's not just predatory lenders, and exotic mortgages to blame, it's the salary of the average American. The salaries of average Americans did not increase in direct proportion to the skyrocketing of house values/prices. What happened in recent years was a frenzy with bidding wars, and one home in one neighborhood going for a huge increase, thus affecting all others in the neighborhood. Until salaries keep apace, we will not see the turnaround people are expecting, maybe ever.

Until local housing prices drop to fundamentally rational levels prices will continue to fall in this area. The Boston and surrounding area are not at that point yet and IMO it still needs to drop at least another 10-15% for sustainable living expense.

The economy will definitely create more problems in the housing market for the next year to year and half. The first round of was the sub-prime meltdown with the drying up of credit. The second will be the hit that the middle to upper class folk take on their investments which will keep them from making big purchases. Then the prime loans will start to fall.

I don't know what house prices will do, but I know what would be good for the country. They should decline at least to 2003 levels, and preferably much lower.

It's very strange how everybody talks about expensive housing as though it was a good thing. Nobody says that it's a good thing when food prices rise. But housing eats up a much bigger chunk of people's paychecks than food.

To my mind, the high price of housing since the 1980s has been an unmitigated disaster. The culprit, of course, is that people think of houses as an investment rather than an item of consumption. Once people have realized that nobody's going to make a free fortune from real-estate for the next generation, they will start thinking in terms of the *real* value of houses -- as places to live -- rather than their value as something ot borrow against. And then, it will become obvious that expensive housing is bad and cheap housing is good.

So... prices may go down 10%, or they may go down more than 10%, or they may not go down at all, or they may go up.??

The data published on the Massachusetts Association of Realtors website shows that the statewide median sold price of a single family home in August 2008 is roughly the same as August 2001. Consumer sentiment today feels a little bit like the mid-1990's when home prices declined below the market's floor level. We will probably reach that floor when a first-time homebuyer can afford a more traditional mortgage than was sold during the housing boom.

Location location location!

Boston's city center market continues to thrive. And in many desireable communities, bidding wars and price increases are happening (See Sept 7th Boston Globe article).

Otis & Ahern, one of Boston premiere realty firms is on target for exceeding 2007's sales.

I see nothing but great news for desireable areas of the Boston area, especially the fortune kissed neighborhoods where the state's creme de la creme of society live: Back Bay, Beacon Hill and the South End. These areas have proved themselves to be immune from the economic downturn that is striking in less desireable areas.

While towns such as Brockton, Lowell, Lawrence and Chelsea might have cause for further declines, rich areas will only continue to boom. The bailout from Congress is now kicking in, the stock market is in full recovery mode, and I see nothing but miles of smiles down Commonwealth Avenue! So three cheers for the Boston city center market!!

Sunshine,
You compare Beacon Hill to Lawrence... thats an Idiotic comparison. Your talking about a segment of the population that is perhaps 2 tenths of the population of teh state (6 million people). Look at the prices from Worceter East. Those are the prices that matter. Not 15,000 of the richest residents with the biggest Trust Funds in the State. I wouldnt worry about the potential of falling home prices if Daddy and Gran Daddy had given me $5 Million in a Trust Fund! We are talking about people who are making it on their own here and who do worry about making the right decisions withe their families money because they have to deal with the consequences.

It is important for Fitch to identify the economic fundamental context. For instance, prices could drop 10 percent but interest rates could go up 2 points, in which case it would be better to buy now.

Yes, all real estate is local, as Tip O. might have said if he was an observer of real estate market activity. For example, according to Warren Group data for single-family homes, the median price in Lexington has increased from $691,500 in 2007 to $749,900 (YTD). The rate of sales is roughly the same, 33 or 32/month. The peak median had heretofore been $705,000 in 2005 on the basis of 417 sales (32.42/month). The peak year (since 1991) for number of sales was 2004, with 434, though median price was at the then-peak of $655,000

Some people seem to have been doing well enough and are optimistic enough to fuel local markets such as this. In answer to previous post, the difference between home prices and the price of food or even durable goods is that buying a home is an investment in addition to having immediate usefulness as shelter, which is a dividend of sorts. Hopefully for homeowners, this investment increases in value over the years, hence a “good” market, by owner/seller standards, not from a buyer’s point of view. From an agent’s (both buyer and seller agents) perspective, a “balanced” market is best, where inventory is plentiful enough to supply a pool of willing, able, and ready buyers with time and flexibility to get a decent value and when sellers are satisfied with the prices they get for sales of their homes after a reasonable time on the market. This will result in a steady stream of transactions, the closing of which is required to result in agents’ commissions.

Matt, don't bother responding to Sunshine. She is either a troll or a bitter realtor who is upset because the housing market is tanking. In her world, Massachusetts is immune to everything.

Yes, home prices will continue to fall because of the weakening economy. The government's bogus GDP numbers still show that the economy is not in a recession yet (even though we have been in one since late last year/beginning of this year). What will happen once the government finally admits we ARE in a recession?

The real threat, is the bond market. It has already started to show signs of cracking and once the bond bubble bursts, long term interest rates will skyrocket, causing home prices to collapse. Bad news for current homeowners. Great news for those looking to buy. Of course, you will need excellent credit and a 10-20% down payment. But, when the median priced home in Mass plummets to the mid/high $100,000s, coming up with $15 to $30K should not be that difficult.

Sunshine and Lollipops is still smoking too much weed. Last time he or she talked about how Boston has doctors and lawyers and professors unlike "far-away" New York. So when you say something stupid like that, why Sunshine are we supposed to believe whatever else you write? NY is not far away and also has plenty of docs, lawyers and profs, so....

John P, if interests rates go up 2%, than home prices "should" drop roughly 20% in order for mortgage carrying costs to remain equal. So, if someone can afford to spend $2,000 a month they can get a $300,000 mortgage at 7% (for simplicity I'm eliminating taxes, insurance, etc.). At 9%, that same $2,000 a month will get them a $240,000 mortgage. The math is every 1% rise in interest rates will be offset by roughly a 10% drop in price.

The reason we had a real estate bubble and skyrocketing prices was due to low interest rates and a massive expansion in credit (i.e. inflation). Conversly, higher interest rates and a contraction in credit (i.e. deflation) will lead to lower prices. It's basic economics and basic math.

The threat of higher interest rates is a reason for potential buyers to wait:

1. Since prices tend to overcorrect, odds are that prices will drop much more than 10% for every 1% rise in interest rates.

2. It gives them more time to save a down payment. The down payment will be a bigger percentage of the purchase price, so the mortgage carrying costs, and total cost over the life the mortgage will be less.

3. Since people love to tout the tax writeoff benefit (I argue that spending $1 to get back $0.30 just displays a lack of financial intelligence) of home ownership, more of the monthly payment will be going to interest and less to principal, so the writeoff will be larger.

Cracks me up when people think Sunshine is serious..come on thats you, isn't it Marcus. In all seriousness, who in their right minds would want to buy a house right now? Take a look at the economic forecast from the major banks, and the federal reserve. Anyone that thinks prices have any hope of going up are delusional. I have looked at numerous mortgages on banker tradesman & mass land records and barely any of the houses I have looked at have more than 15-20% equity. Many have less than 10%. When prices drop another 10% the sheer number of people who might as well leave their mortgages will push the drop to about 30% which will in turn push it to about 50%. There simply isn't any risk in waiting anymore, prices cannot go up in this economy.

I wonder how many of you that predict falling home prices have looked for an apartment lately? Apartment rents are sky high for garbage. I'm looking for a house....and have seen next to nothing in the way of price declines. So I hope that prices decline...but see no reason for them to do so when buying in Massachusetts is so much of a superior alternative to renting. Compare that to Florida where the rents are ridiculously low because there's no work aside from low income service work and where the home prices are sky high. THAT market has dropped like a rock and will continue to do so.

I rent a nice apartment in Back Bay. Still a lot less expensive than buying it would be.

Any thoughts on when you should "upgrade" (i.e. sell your current, smaller house and buy a bigger one)? Should you do that now for fear that you won't get as much for your house in the future and interest rates will increase or wait so that, even if you lose on your current house, you gain in savings on the bigger one? I'm in this dilemma and would love some other thoughts.

"Own your own home" has been the American mantra for who knows how long. "House prices always go up." This is # 1 source of equity for many if not most Americans. What many people do not realize, or refuse to say openly, is that Americans, on average, are getting less well off everyday vis-a-vis the rest of the world.- especially the middle class. Over-extended credit, under collateralized mortgages, over valued stocks are all evidence for this. In an increasingly globalized economy, the U.S. is coming back to the pack. The U.S. does not and will not regain the economic dominance it has enjoyed for the past 80 years or so.
We are living through an economic earthquake.

Andre, the average rent in Mass is around $1,300 a month. The median home price is around $325,000. The mortgage on a $325,000 home would be roughly $2,000 a month at 6.5% interest. Add in taxes, insurance, maintenance, water, sewer, etc. etc. and the cost to own a home is easily twice the cost to rent, if not more. And really, if you are spending more than $1,300 a month on rent, you really are "throwing money away" as all the realtors love to say.

I've never paid more than $800 a month for rent (either sharing a two bedroom or on my own in 1 bedroom). My yearly living expenses are not much more than some people pay in taxes every year. There are cheap rents out there. You actually have to look for them. Of course, if you must be in Back Bay or some other overpriced location, than you will pay a premium.

I think that Sunshine is definitely a realtor - there are similar posts on different topics all with the same theme. I think there are some towns that houses are still going for close to asking price - Arlington, Brookline, Boston. We are looking at Arlington for raising a young family but the school system goes South once you are out of elementary schools. I rented in Arlington in the early 90's and the funny thing is, it's somewhat of a 'hot' town still by virtue of location and that the rebuilt all their elementary schools, but what you can get for 500k is still dumpy and you get so much more if you head out West just a bit further. I also still contend that you have to look at salaries - if salaries do not increase in proportion to house values, we will still have a dorky system where people really can't afford these prices. Prices should come down at least 10% or more and most people do not think the economy is getting better anytime soon.

Wages have been stagnant for years, meanwhile home prices went up 60%, 70%, 80% or more (although now they have dropped about 15%).

The reason home prices skyrocketed was due to low interest rates and easy credit (and of course herd mentality that prices always go up). Now we have slightly higher rates (headed much higher once the bond market collapses) and a credit freeze.

I'd place a heavy bet on home prices falling, rather than incomes rising to get back to the average 2 to 4 times median income to median home price.