More numbers to chew on

Prices in the Greater Boston went up 80% from 2000 to 2005. How much have they fallen so far? What the hell is so brutal about this situation? Unless you bought within that short period of time when the prices were on top you must be doing great. Right?

Happy New Year-
California had some way to go, to just to get to Boston/MA...still does...still they will remain higher than MA, because more people would rather be in California than MA...the other cities mentioned, can still get cheap land and cheap labor to build new homes...the appreciation on the homes that were built in these cities does not make as much sense, because you can build a home there for under what the median prices is/were....I see no evidence that new home construction can be built for under the median home price in MA...not anywhere within a 30 mile radius of the prudential building....until that issues is addressed, the MA homes will retain thie value better...not saying they wont come down, but they can never go below the replacemnt cost....

Scott- You are doing a good job of promoting doom and gloom. What you fail to mention is the record gains previous to 6/2006 or the long term growth of real estate values. Your last sentence really was out of line.
Case in point - I bought a property in San Francisco just over ten years ago and I am selling this property on Tuesday for more than twice what I paid for it.The Case - Shiller index indicates that this is about the gain to be expected. Those who are losing value are those who bought recently during the period of feeding frenzy and easy loans..If there had been any research of value, ( Case - Shiller for instance),these people who probably not have bought at inflated values. Many of these purchases were driven by greed .These lemmings will never learn and will probably do the same thing during the next bubble..

.

I wouldn't consider it doom and gloom at all. But rather objective reporting. The media is essentially bought and paid for by realtors and mortgage companies,
who live buy the "buy now" mantra. It is good to see some articles on what is really happening out there for once.

Alex- Boston is at 60% inflation from 2000 as December 08. it peaked at 80%...But, if you go back to 1987, when the model starts, it is about 210%...over 21 years...that 4% avg. annual appreciation...out pacing inflation by ~1% a year..people are all up in arms because it rose so fast in the 2000's....they forget that it stalled in the 1990's....so part of that inflation was a correction of the 1990s...we are now seeing the correction of the over correction..if that makes sense?? I believe if you go back to the earlier 1980's, the avg. annual appreciation is in line with inflation...3%...so is it over? Who knows...only the buyers can tell us that....It might be 5 years to see prices we have today...if you don't have to sell, then don't...you are paying down principle, getting tax benifits...so why?

REmaven what was your IRR on the Frsico property, just curious. Thanks.

RE Maven - I think you misused the term greed. The people who purchased during that time were largely driven by FEAR, not greed. Fear (irrational or not) that they would be priced out of buying a home forever. Those that sold were the ones driven by GREED. Greed that they could get a few extra buck for the property they owned whether they wanted to sell or not. I guess there were real estate investors (i.e. professionals involved in making money in real estate who didn't want to live in the houses they were buying) driven by greed buying properties, but their greed was largely satiated by selling at high prices too. many of those professionals seem to glibly throw around how greedy and stupid people were while they made a killing in the market. Ironic!

Really should be on the worst of 2008...the misuse of the word greed in 2008!!! In 2009, GREED will belong those desperate to see lower prices and waiting for some magic numbers to buy, and FEAR will belong to those anxiously looking on as their home prices fall.

Exactly Alex. Home prices in Boston went up 80% over that time period whereas in many other areas, home prices went up 150%+. And that's why those areas are crashing harder than Boston. The end result is still that prices are reverting to the mean regardless of area.

Losing 33% of value on a home that went up 50% is no different than losing 50% on a home that went up 100%. The percentages are different, but the final value is the same.

The metric I'm using for housing is JOBS.

"You got to have a J-O-B if you want to get with me."

People without jobs don't buy homes. People afraid of losing their jobs don't buy homes. And in 2009, the job market will only get worse, likely approaching 10% unemployment.

So for me, it's pretty simple: when the job market shows signs of recovery, I'll buy a home again.

Then again, we didn’t build as much housing as many other cities during the real estate bubble.

It's not about the supply of houses. If that were true, rents would have gone up, too.

It's about the homebuilding industry. It's much smaller here than in, say, Phoenix or Florida. And that industry fell first in the recession, hemorrhaging jobs as soon as the bubble burst, which is why those places went south much faster than we did. We also don't have much auto manufacturing or investment banking. So our recession started later than the rest of the country.

It's sure hitting now, though. October numbers reflect offers made in August. Just wait til we start getting numbers from deals conducted since the collapse of the financial system and the economy.

"Prices in the Greater Boston went up 80% from 2000 to 2005. How much have they fallen so far? What the hell is so brutal about this situation? Unless you bought within that short period of time when the prices were on top you must be doing great. Right"

It's not just the people that bought during that period who are being hurt. Think of all the people that refinanced or took out home equity loans during that time. Think of how much the cost of college education has increased over the past 10 years and where they got the money to pay for their childrens education.

I still like this simple passage from a Business Week article that sums it up nicely in a couple of sentences:

"Today's housing prices are predicated on an impossible combination: the strong growth in income and asset values of a strong economy, plus the ultra-low interest rates of a weak economy. Either the economy's long-term prospects will get worse or rates will rise. In either scenario, housing will weaken."

"We're from the government and we're here to help"

From the Boston Fed:

We show that much of the subprime lending in the state was concentrated in urban neighborhoods and that minority homeownerships created with subprime mortgages have proven exceptionally unstable in the face of rapid price declines. The evidence from Massachusetts suggests that subprime lending did not, as is commonly believed, lead to a substantial increase in homeownership by minorities, but instead generated turnover in properties owned by minority residents.
Another great government policy...

You can't make this stuff up!

“July 2006: ‘The evidence of a cool-down is everywhere, but I don’t think there’s evidence of a collapse. I think barring any major macroeconomic shock, like a real spike in interest rates or unemployment, things are going to remain pretty flat.’ – Sean Snaith, then director of the Business Forecasting Center at Stockton’s University of the Pacific.”

“What happened: The next year in Sacramento County, home sales fell 23 percent and prices fell 10 percent.”

“October 2006: ‘I think by next spring the residential market will reach a plateau. … If my scenario holds up, you may be under water 10 percent for a while. I don’t know if you’d call it a soft landing, maybe slightly hard, or hard light or something, but you’ll still be fine.’ – Richard Kovacevich, then chairman and CEO of Wells Fargo & Co., in a Bee interview.”

“What happened: Sacramento County median sales prices fell another $24,500 by June. In July, year-over-year depreciation went into double-digit percentages and has accelerated ever since.”

“November 2006: ‘It’s not like we’re seeing a huge erosion in home prices, and really do not expect to see that going forward.’ – Robert Kleinhenz, deputy chief economist, California Association of Realtors, giving a 2007 real estate forecast to Sacramento Realtors.”

“What happened: In 2007, Sacramento County sales prices fell 20 percent. In 2008, they’ve fallen again by a third.”

“January 2007: ‘We don’t expect any significant decline unless there’s some major economic shock, and we don’t anticipate that.’ – Alan Nevin, chief economist, California Building Industry Association, unveiling his 2007 forecast.”

‘What happened: In 2007, California’s new-home sales fell 31 percent. This year, they fell almost twice that much.”

“June 2007: ‘I think right now, we’re probably bouncing around the bottom.’ – Sid Dunmore, then chief executive officer of Granite Bay-based Dunmore Homes. What happened: Five months later, Dunmore Homes filed for bankruptcy protection.”

“March 2008: ‘I think California has maybe two more quarters of tough sledding and things are going to get better. … It’s just a 36-year gut feeling kind of thing.’ – John Robbins, a San Diego mortgage banker, and 2007 chairman of the Mortgage Bankers Association. What happened: That was three quarters ago.”

"It's not just the people that bought during that period who are being hurt. Think of all the people that refinanced or took out home equity loans during that time. Think of how much the cost of college education has increased over the past 10 years and where they got the money to pay for their childrens education."

I am thinking, and, unfortunately, the college costs are not pretty for anybody, a homeowner or otherwise. A renter may face the same exact problem. A homeowner is not worse off in that respect than anybody else.

while foreclosure sales are certainly abundant, they are nowhere near the level seen in California

Just wait for it. MA had over $1 billion in Option-ARMs from WaMu alone. Option ARMs are the next, bigger bomb to explode. They're not helped by low interest rates, because they're recasting, not resetting.

agreed 100% Marcus, the Option ARM resets will be the Waterloo for the MA
housing market....

Finally a comment on the Case Shiller index -- Boston down 6% year over year -- that is heavenly -- BUT YOU WOULD NEVER KNOW IT FROM THE GLOBE -- The Globe keeps picking up the Warren median data which means NOTHING !!!!!! Median data is distorted by changes in the mix !!! they are useless !!!!! and the Globe calls annual data monthly as they did again last week