When foreclosures outnumber new homes

Scott - Your gloom and doom turns my stomach. The numbers presented in this article are garbage. It is like saying that cold weather in Alaska is effecting the orange juice prices.
The national numbers have little or nothing to do with Boston. The cheap and foreclosed homes in Dorchester , Lynn , and Lowell are not the same type of properties that are being built. To propose that the fact that a foreclosed multi in Lowell has an effect on the marketability of a luxury high rise in downtown Boston is absurd. Or , that a foreclosed single in Detroit has an effect on new construction in Boxford is ridiculous.

I know that new housing is somewhat important but really lets focus on getting the trades to work rather, I would rather see the foreclosures off the market and people remodeling their homes to keep the trades in business rather than just building new homes.

it's all good....

I find myself feeling for both sides of the argument (again) since none of the data we ever get to hear / look at is particularly local.

1. Give us Massachusetts vs. National data
2. Give us Boston metro vs. Massachusetts data

Otherwise we keep going in these foolish circles of defining parameters and terms. I know it's difficult to get this data but even country-by-county data doesn't seem worthwhile because the activity isn't happening along those lines, but rather in rings emanating from Boston. If we really want to get a sense of the state of things, that's the best way to look at it.

This makes complete sense. With more foreclosures, why are they even building new houses?

Your gloom and doom turns my stomach. The numbers presented in this article are garbage. ... The national numbers have little or nothing to do with Boston.

Scott is simply reporting facts, which are indeed gloomy and doomy. National numbers have everything to do with Boston because, as we have discussed, Boston/MA residents may move to where cost of living is significantly less, especially after steep price corrections elsewhere. Geography does not protect you from deflation.

Besides, Scott isn't gloomy enough: Massachusetts ranks 14th in the nation for its phenomenally high foreclosure rate of 1.64%, up 577% YoY from 2006 [tinyurl.com/882vup]. People in Alaska, whose rate is less than half of this, should complain about being lumped together in national statistics with Massachusetts, not vice-versa!

And Scott only warns about the possibility of one million foreclosures. Roubini warns about 10-15 million foreclosures in a "jingle mail tsunami" if national prices decline 10% [tinyurl.com/8vr3fk]. If prices decline 20%, as many leading analysts and banks are predicting, then there could be 20 million foreclosures.

Finally, Scott demonstrates some realism that the mortgage crisis could likely last until 2012, yet most of the boomers will hit retirement between 2010 and 2015. This demographic and the burst of the housing bubble is expected to cause the "great cratering" of home prices [tinyurl.com/6wojpu].

It is not doom and gloom, but simply realistic based upon the hard facts at hand to expect this crisis to last at least until the middle of the next decade.

Sayonara [tinyurl.com/9pfqvu].

Never try to reason with a realtor. Thier powers of self-deception can't be underestimated. To suggest that foreclosures don't matter because you deal with higher end properties than the distressed ones is just silly. Just because you don't sell in Lynn and Lowell doesn't mean you can't be touched by a market melt down. Look at Miami.

Good post Sunny Jim.

Jack Shack your comment seems a little biased. While I would have to agree that there are many of us out here that don't have a clue, you seem to think because one REALTOR has posted this comment that that is the stance of all REALTORS. Nothing could be farther from reality. There are plenty of us out there that have a better grip on reality than the overpriced Sellers and underwater homeowners in the current market. They are the ones most in denial. At least 70% of listings in our market area are still moderately to extremely overpriced This market is a once in a lifetime opportunity to pick up real estate for unheard of prices. Unfortunately that only applies to Buyers. Most Sellers are up the proverbial creek without a paddle and probably in for a lot more pain before it gets better.

I personally see this lasting a lot longer than most predictions out there now. Scott made a great point about boomers. Another point to add there is under current law most of these boomers have to start cashing in IRA's at 71.5 yrs of age. The laws of economics apply here as well. With the largest number of individuals in history cashing in stocks and mutual funds tied to IRA's the market will be flooded with these securities at a time when very few Buyers will be in the market to pick them up. This could be a new shoe dropping as retirees find their funds value cut in half or more as they try to liquidate. No doubt the government will try to legislate around this and end up screwing it up even more.

Bottom line is we spent the last 10-20 years getting into this mess by extending credit to anyone with a pulse and it will take a lot longer to get out of it than most people think.

Want to see a site where REALTORS aren't afraid to speak up on reality? Check out www.bloodhoundblog.com. Most of the contributors there have a much better grasp of the obvious.

"This market is a once in a lifetime opportunity to pick up real estate for unheard of prices". said Alpahretta GA Real Estate Pro

"Never try to reason with a realtor." said Jack Shack

I think Jack Shack hit the nail on the head...

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The relative lack of new housing starts in the greater Boston area during the housing run up is part of what has moderated the fall in greater Boston values compared to other areas of the country. Although reduced current inventory reflects un-willingness of potential sellers to list their homes, it is also due to a relative lack of new construction. This is what has "saved" Boston home values. Jack Shack, it is not about whether you can or can't be "touched" since everyone is affected; it is more about by how much we are / will be affected. The "desireable" expensive suburbs are not spared but are simply not hit as hard and will not be hit as long. Miami has traditionally been a volatile market and is not comparable to Northeast Urban centers. Hung Wang, you are highly critical of those who see a bottom this year. Tell us your "strike price", the time when you think the market will hit bottom, when all of us on the sidelines should start buying again.

Bostonrunner, I can't put a precise time on a bottom (it certainly won't be in 2009 or 2010 though) the game is still in the second quarter. At a minimum, I see a reversion to 1999 (pre-bubble pricing), before the liberal underwriting FNMA, alt-a, and sub-prime machines really got going. Worse case we could head back to 1997ish pricing pre-capital gains tax-break increase (single family cap gains sheltered up to 500k for a married couple), clearly another big contributor to the bubble. Housing will lose its attraction as an "investment" for many people, ego homes (mcMansions) will lose popularity as it will be viewed as just shelter.

All - If you take all the unrelated data, throw it in a pot ,and mix it up you are going to come up with garbage. And this is pure garbage.
There is no real estate market where the prices rise and fall or hit bottom. Each property is independent .Those who have not bought during the current inflationary period are not effected by the current situation. Joe who bought his house in Billerica in 1990 will probably get normal appreciation when he sells tomorrow .
Statements that suggest that a market being flooded with cheap bank owned foreclosures is effecting the demand for new construction are way out of line. The foreclosures are generally rat holes , and the glut of rat holes only effects the market for rat holes...
Can anyone explain how a distressed property in Dorchester that is foreclosed effects the market is Weston? We have a segment of the market that has issues , not the whole market.

The foreclosures are generally rat holes ...

Nonsense. There was a $2.4 million foreclosure on our street last spring. Two $2 million dollar homes (asking) on the market across the street and abutting the back yard never sold last fall. They've been rented for $4,000/month. The carrying costs on these places is around $12,000/month.

The ceiling on rental values for homes in Weston isn't much higher than that, no matter the cost of the home.

This crisis has affected people at every level of the economic spectrum.

in Naples, FL and some of the better parts of Miami, there are a TON of nice multiple 7 figure homes for sale as foreclosures. High-end condo foreclosures ARE THE MARKET in Miami. No bargains (yet), but a lot of very nice REO.

Sunny Jim - The foreclosure data indicates that the vast majority of the foreclosures in this area are sub prime loans on multi units and low cost singles in distressed areas. There may be the odd ball 2.4 Million foreclosure but, there are always the odd balls.
The rents greatly exceed 4k a month is Weston . I did some quick research and there are rentals in that area rented for $10K + a month and a number listed for 10-15 K a month. The owner of those properties should call Rona for some help.
SJ you appear to be just slinging it .

Sunny Jim - Just looked at foreclosure data for Weston.There is only one listed last year . Can you say odd ball? I don't know the circumstances but , I suspect a flip attempt gone bad.
So, I guess that you are partially correct in saying it has affected people at every level of the economic spectrum. Don't see any foreclosures in the 10 Million and up bracket so the high end is off the hook.
The vast majority of foreclosures are in distressed neighborhoods. The question I asked @12 still stands unanswered.

"The rents greatly exceed 4k a month is Weston"

Ah no...

Weston rental homes listed on Craigslist today;

4bd 2.5 bath 3000.00

4 bd 2 bath 2700.00

4bd 2.5 bath 3500.00

3bd 2.5 2795.00

RE maven,
If this article was written 12 months ago I would have to agree with you to some degree but the fact of the matter is that regardless of what the RE professionals want folks to think or those who bought during the recent run-up, prices even in those metro Boston towns that everyone thought would weather the storm are now taking a beating as well. I don't say this as a personal observation but from folks I talk to in the RE industry that show homes in these areas.

Joe - If you ignore the bubble , not much has changed in most areas . There is much turmoil due to the subprime mess but, this does not effect everybody. The expected long term real estate appreciation is still there . The spikes in value have just unspiked.

RE Maven -

Actually, foreclosures in Lowell and dorchester do affect prices in back bay. Basic micro-economics. Not as direct substitutes obviously, but as an addition, and thus a shift, to the supply curve.

To give an example, (forgive if the details are a bit off, there is a limit to the amount of typing and specific research I am willing to do for here). Prices in Brockton affect prices in Holbrook. Prices in Holbrook affect prices in Quincy. Prices in Quincy affect prices in Southie. Prices in Southie affect prices in the South End. And prices in the South End affect prices in Back Bay. Thus prices in Brockton affect prices in back Bay.

I see prices going back to 1998/99 levels myself, like Hung Wang. And then staying there for the next 10 years. This is annoying for me personally, as I don't see how I can make any money in real estate in such a pricing regime, but I try not to let what I'd like to happen affect my view of reality.

Charles - Try getting involved with the TARP owned CDOs. There is significant hidden value in these assets.

RE Maven,
Long term real estate appreciation is one thing, the next 5-10 years is another. Whether one ignores the bubble or not, those who continue to wait or did not buy during the latter portion of the run-up will surely see price declines compared to a few years ago in the magnitude of at least 25% across the board.

some of the higher quality reits like WRI and DRE are worth looking at. No landlord hassles, and perfect liquidity, just solid real estate operating cos. with fairly strong balance sheets.

Oh, I'm making good money in the market, have been for the last several years since I got out of real estate. TARP CDOs are something I don't really have the resources to do, but I've done very well with high grade corp debt in the last few months, and think there are still opportunities there.

But mostly I see shorts, with some heavily hedged longs. Shorting a way out of the money put is generally about the limit of my long comfort level. Ok, and an LBO opportunity that might be coming up - there are certainly opptys in the markets, its just finding them.