Shocker! Home prices fall!

The reports are good news. Can you imagine starting a blog post with this sentence:

Just having some fun with the latest slate of mostly depressing reports on falling gas prices.

The economy and the financial system cannot recover until housing bottoms. Housing cannot bottom until it falls to historical norms. The faster that happens, the sooner a recovery can start.

You're trying to find the silver lining? Let me help you out: it's the part about housing prices falling. Lower gas prices = good. Lower food prices = good. Lower housing prices = good. Maybe it's not so good for you personally if you were planning on using your home in lieu of actually saving, but lower housing prices are great news for those looking to trade up, for first time buyers, and for every future generation hereafter. Absurd housing prices were one of the key elements responsible for the current financial crisis and their return to normal is absolutely a good thing for the long term health of the economy, for your children, for your children's children, etc.

Scott -Many of the "sales" were foreclosure deeds . This is no silver lining or promising trend .
Making up promising news is worse than having bad news.

I actually think the good news is that there are more foreclosures and that foreclosed prices are actually beginning to drop into the realm of the rational. I'm beginning to believe more and more firmly that the solution to the housing problems and the economy is simply substantially lower housing prices. But this can't happen without massive foreclosures, since so many houseowners/sellers bought recently during an extremely irrational bubble, or took out 2nd mortgages or HELOCs at the bubble prices - they simply can't sell in an increasingly rational housing market. Therefore, unless they can eat the loss themselves or hold onto the house, they must needs be foreclosed on and their houses sold at a much lower price by the mortgage holders. No massive foreclosures, no housing prices in line with historical norms of affordability. No prices in line with such norms, no recovery for the economy.

Home values during the bubble were distorted by rampant buyer and lender fraud, feverish exuberance, degenerate lending practices, and a culture of irresponsibility and lack of accountability, which all served to puff up prices with false value. Any solution needs to account for this and if it considers the buble values to be the "real" value is probably doomed to fail or worsen the situation.

Me thinks that the # of sales is going to go back down to what it was before the October spike. Like you said, these properties went under agreement before the stock market collapse. Many people who were considering buying a home are going to think twice since now there is a very real likelihood of getting laid off. I myself was considering trying to trade up, but now I'm going to sit tight and hold onto that sweet, sweet cash.

Then again, mortgage rates are looking really good again.

I don't find these reports on housing numbers depressing, I find them providing me with some shread of hope. My hope is that housing costs will return to good, solid fundamentals (price to rent ratios, income to mortgage costs, etc) so that it will make sense to enter the market. Until then, I am happy to rent, especially if it provides me flexibility in recessionary times.

One other item to note, in the last few months, I knew of many people who jumped in the market because they were afraid that as the economy grew worse, and the markets grew worse, they could be shut out all together due to lending issues. So they jumped in. I think this is a spike that with vanish as the winter months drag on.

I agree with Marcus & annon#2.

It is just like when the latest news starts with the words, "The housing crisis of 2008..."

The housing crisis is people using more than 45% of their income to puchase a house with no money down instead of saving money for an emergency. A housing crisis is when the annual increase in home prices is upwards of 10% while the savings rate is negative and wage growth is nil in a state that is seeing its population decline. A housing crisis is prohibiting the development of additional housing through backwards looking legislation while moaning about the fact your children can't afford to purchase a house in the state. A housing crisis is throwing out hundreds of years of contract law in favor of "keeping people in their homes" that they cannot afford at any interest rate while middle-income taxpaying individuals leave the state in the name of affordability.

Silver lining? Here's a silver lining: imagine what the economy would like like right now if home price increases over the past ten years mirrored the historical rate of price growth of less than 1% over inflation and the money borrowed to finance those homes was instead invested in real bricks and mortar businesses? Businesses that provide real jobs producing real goods that we can then sell around the world? Instead real economic growth the only job growth we've seen over the past ten years is in industries with few barriers to entry that specialize in taking "a little off the top" selling used items: used houses, used mortgages, used insurance.

I agree with the comments above. Good or bad news depends on which side of the equation you are sitting on. I for one would love to hear more from the point of view of a first time home buyer who may now finally be able to get into a house they can afford. The bad news for me is when I hear about the government using my money to find a way to artificially keep real estate overpriced.

Marcus - I have to disagree with you. Falling gas prices is bad news. Both for what it is signalling, and for what will now happen to conservation, fuel efficiency etc.

High gas prices, to a point, are actually good for the long term health of this country.

As for home sales, to paraphrase the article on this in the globe, last go around (1991) sales rose for 8 months before prices stopped falling.

So I doubt this is good news for home sellers, even leaving out the fact that its data from before the fall melt down. And that there were markets where over half the sales were foreclosures.

It is good news for people who think rational home prices are good for the economy.

I'd say the implications for Boston and surrounds are thoroughly ugly though. The data says house sales will increase when prices drop, driven by foreclosures. A very reasonable extrapolation from that, and the fact Boston prices haven't dropped much yet, is that they are due for a big drop.

Boston could be unique in the united states. Or it could be a little behind the times. That's what the fundamentals say.

Though there are optimists out there. I notice that some sucker actually bought 53 madison in cambridge (discussed in the blog a few months back)

Charles, you can't disagree with me. It would create a black hole that would annihilate the universe. :D

Luckily, in fact, I don't actually disagree with what you say about gas prices in general, though the rise we experienced earlier this year came too quickly and was too much of a shock for the economy. I'm merely pointing out the logical flaw in the Scott's lede.

When banks and shareholders were on the hook I viewed such numbers with glee., now that I am paying for it, not so much. ..

charles, looks to me like sour grapes on 53 madison. they got a good number in, good number out, turned it around relatively quickly in a down market and w/ the caveat of having never been in the property pre or post, looks like they did a nice job. no idea who they are but they have very limited activity in middlesex south so i'd say a congrats is in order on this turkey day for apparent non-pros who beat the market when most pundits claim it can't be done.

We just closed on a short sale. It was very clear to us during the closing that the couple involved were not in dire straights.... they were basically walking away from a bad investment. Indeed, they made money off the sale. (The bank offered them an incentive to short sale rather than foreclose.) I have sympathy for folks who truly are in distress, but I've also seen many circumstances where that is not the case.

Well, I guess you can say kudos to the sellers. But the buyer is still a complete sucker (as what Charles stated). I can't believe paying that kind of money in N. Cambridge for such little square footage. And in this market!

sour grapes on 53 madison? Nope. Mere amazement that someone actually found one of the last suckers who would buy a superficial flip in a lousy location at twice the price. Someone always has to be the last to get the message indeed, but I really would have thought that happened last year, not this year.

But hey, I'm admitting to being wrong here. No way did I think that someone was going to buy 53 Madison for 400k, let alone what they paid.

Just shows how much there is too learn. No matter how cynical I am, there's always evidence that people are even slower to get the message than I could possibly guess. That's been my major analysis failure - I thought this would all be happening 2-3 years ago, the actual pace is way slower. Very useful info

Who is more important for the country? A person who lives in a house he can't afford or a person who would like to buy that same house but can't afford it? Let's make a choice. If it is the former then screw the future graduates and new families. Let them pay 45-60% of their income for housing. If it is the latter then let's foreclose on them and put the houses on the market at lower prices. Perhaps it will generate some economic activity for a change. We can't please all. Let's make a choice.

I myself am against artifical affordability through tinkering with financing products.

The increased sales volume is not due to an increased number of foreclosure deeds the number of foreclosure deeds appears to be about the same. It is due to the banks selling off more of the properties that they foreclosed on a while back from inventory they acquired from short sales.

Sarah

fuel prices down - good

clothing prices down - good

food prices down - good

home prices down - a national disaster