Buyer Agent-Eye View

This article as written is a little too self serving for me. Maybe because I have advanced degrees in finanace and economics - and currently working in sales for a Fortune 100 company - but in all of my research for the past year into multiple towns in MetroWest up to $1.250M - all my facts fly in the face and contradict what your friendly and optimistic agents are posting. The differences between original asking price and the final selling price and the number of days on market are all very weak and will get worse as the economy stagnates and the unemployment rate gets worse.

Maybe they can supply us all with a number of hard data points to support what they are telling you? We'd all love to see it.

Absolutely nothing in the 350 - 450 range in communities with commuter rail stations near 24 and 495 south of boston. The same houses that were on there last year are just being relisted. I think we may actually see a spike in home prices because the quality of inventory is so low. I've seen many young couples looking at the same houses and you can tell that they are exhausted with looking at the same crap and will jump at the first opportunity they see.

I'm not sure if it is the banks holding onto foreclosures or sellers just sitting tight, but these huge price drops and great deals are nowhere to be found. I'm very discouraged with the house hunting process.

Being a first time buyer, and sitting on the sidelines since 04, when saw the bubble swelling, I am still not satisfied at the prices of houses (I'm biased, I know).

I plan to stay at my first house for a while, at least 10 years, but the only properties available within my self-set requirements (1000+ sq ft, 15000+ sq ft land, and a decent neighborhood) are all well over 350k. Most of the properties listed within my price range need a new septic system, or complete rehab. I would like to not be house poor, so if I will by a fixer upper, ill wait till they are closer to the 200k side of things. I figure I have a few years of negligible return or losses in the housing market anyway. If something strikes my fancy sooner rather than later, i will be sure to jump on it, but I will not sacrifice my financial wellbeing to buy a house that many now deem as a "steal"

Rona,
I know you are interested in the Boston area, but I saw your post and thought I'd share some feedback on what we are seeing in the Ann Arbor area.

Ann Arbor real estate is quite seasonal with the University schedule driving a lot of purchases. We now have a crop of graduate students who need to be moved in before July first and as a result we've seen a run on entry level homes.

On one bargain property two weeks ago there were six offers and it sold for $20,000 over asking price.

On the other hand the luxury home market is still fairly quiet.

Regards from the upper mid-West,

Jon Boyd
The Home Buyer's Agent of Ann Arbor

The unemployment rate leapt to 8.1 percent from 7.6 percent in January, the highest in more than 25 years. Some economists now predict the rate could hit 10 percent by year-end and peak at 11 percent or higher by the middle of 2010.
"The massive hemorrhage of jobs is reminiscent of the 1982 recession when the jobless rate hit 10.8 percent. Unfortunately, it will get much worse," predicted Sung Won Sohn, economist at the Martin Smith School of Business at California State University. "It is hard to see where the bottom is."
Besides the 12.5 million total for unemployed people in February, the number of people forced to work part time for economic reasons rose by a sharp 787,000 to 8.6 million. Those are people who would like to work full time but whose hours were cut back or were unable to find full-time work.
If those people — along with discouraged workers — were factored in, the rate would have been 14.8 percent in February.
Disappearing jobs and evaporating wealth from tanking home values, 401(k)s and other investments have forced consumers to retrench, driving companies to lay off workers. It's a vicious cycle in which all the economy's problems feed on each other, worsening the downward spiral.
These realties really put the damper on buying a home until the dust settles.

There is a vast "shadow inventory" of foreclosed homes in the neighborhood of 600,000 properties nationwide – even in the toniest of towns - that banks have repossessed but not put on the market. The banks are holding off for now, as the market could wreak havoc with the already battered real estate sector, industry observers say.

RealtyTrac.com compared its database of bank-repossessed homes to MLS listings of for-sale homes. It found a significant disparity - only 30 percent of the foreclosures were listed for sale in the Multiple Listing Service. The remainder is known in the industry as "shadow inventory."

Lenders nationwide are sitting on hundreds of thousands of foreclosed homes that they have not resold or listed for sale, according to numerous data sources. And foreclosures, which banks unload at fire-sale prices, are a major factor driving home values down. The recent fall-off in foreclosures came because many banks implemented foreclosure moratoriums in the fall, not because the problem has diminished. Those moratoriums have now ended and foreclosures will now come onto the market.

"There is a real danger that there is much more foreclosure inventory than we are measuring," said Celia Chen, director of housing economics at Moody's Economy.com. "Eventually those homes will have to be dealt with. If they're all put on the market, that will add more inventory to an already bloated market and drive down home prices even more."

As I will be buying a home this year, I am taking it real slow and am waiting to see these short sale and foreclosure listings hitting the market very shortly before I make a final decision.

Hard to say. My search has been focused on West Roxbury and Dedham where the available inventory of decent homes in the $350 - $450 range is very low. There seems to be a lot of movement on the lower end of things ($250 to $300) but these are generally distressed, fixer-uppers or bungalows.

Moving west (Westwood, Newton, Wayland and Needham) I've seen modest price drops - but these started at absurd levels so you're talking about ranches for $430. Blah.

Moving further west to Natick and Sudbury, there are some decent homes to be had, but they usually have issues in terms of location or lot size.

Once you start to reach the 495 area (Stow, Southborough, Hopkington, Westborough) you are seeing serious price drops. Houses that were selling to $450 - $500 at the peak are dropping into the $350 - $425 range. Nice house. Big yards. Just pretty far away (and I say this as someone raised in central Mass).

Is the circle of depreciation shrinking closer and closer to Boston? Hard to tell. I think all the factors are there, but for the time being, it seems like the number of people who HAVE to sell homes in the $350 - $450 range have been somewhat insulated from unemployment or have enough cash socked away to avoid having to put their home on the market. Part of me thinks this is a good thing (as a Mass. citizen) and another is frustrated cuz I'd hoped that the current period would bring prices more in line with local incomes. Right now, there seem to be a lot of $550k houses out there, and when I do that math, I am not sure how many $160k combined income households are out there (assuming traditional ratios).

My gut? There is some pent up demand for houses, and the spring sales may show some of that, but relatively few people are in a position to buy the homes at the prices listed, and will any initial spurt of buying won't be sustained. The people who can no longer wait, will buy, and there will be no one else in line once they've made their purchases. Then we see another big dip. Once that happens, we'll have hit bottom.

Just my gut, but I also suspect you will see this in retail as well. Especially with autos. So, beware the false-bottom recovery.

I think we have a stalemate. The argument is almost the same for buyers as it is for sellers - why would you buy or sell right now?

77% of those in a recent UMASS poll cited housing affordability as a concern with 39% being very concerned. Unemployment is rising and our state leaders are preparing to tax us back into the stone age. Health care costs, the impending increase in commuter rail/transportation costs. Add to that the condition of those homes that are in most of the first time buyers ballparks and it's not too difficult to see why so many are remaining on the sidelines. Home prices are still too high. Credit is tighter. I think most will continue to wait, not because they want to, but because they have to.

Some sellers are stuck financially. With the reluctance of their lenders to offer assistance, they can't reduce their asking price. Others are still dillusional.

My question is where are the REO's in the desireable towns - and I don't mean the truly affluent towns. As mentioned above the towns that ring 128 and have commuter rail stations. Are those towns immune? Or are the banks holding onto that inventory until the cycle reverses? I thought that the original Federal bailout was meant to relieve banks of bad debt. You would think that lenders would move those properties quickly given the help they're getting from the Feds. More people in those homes = more property taxpayers = less inventory.

Wouldn't that speed a recovery?

To William's point: You can see some of this shadow inventory in Trulia. The maps display current MLS listings as well as foreclosures, and often the latter never make it onto the market. There is also a shadow of a shadow--a penumbra?--inventory, in the large backlog of delinquent mortgages that have not yet been foreclosed upon. Chase, BoA and the other big banks just announced an end to their voluntary foreclosure moratorium, so look for these properties to move into foreclosure, too.

One thing that's interesting about the inventory: Precisely how many Massachusetts residents do people think can afford million-dollar-plus homes? Skip the knowing, wide-eyed, eyebrow-raised nodding for a second. Look at the numbers. The Globe published a list of $100K+ tax returns by town and zip code a while back (I can't link it here). There aren't as many as you think. Meaning, there aren't enough currently looking to buy the huge numbers of pricey homes now for sale in Cambridge and Newton and Winchester and and and. Which is why the DOM for these properties are astonishing. That's a segment of the market where everybody thinks he can win the lottery and get that one buyer he needs.

i posted this the other day but we're seeing a 12% decrease in homes under agreement from a pretty consistent level all winter. inventory is at about 80% where it has been in the previous 5 springs. in the $500k range, many of the homes are last year's hash and fixer upper capes and ranches. there have been nominal price reductions since peak but the quality of the inventory is substantially lower than it had been so to my mind value is lower now than it has been in the past.

families looking at similar homes and buying at traditional metrics would be making in the $150k/year ballpark. i really don't see many families making roughly double the median income taking on the debt burden in this financial environment to live in a home that families in similar financial shape would not even have considered a decade ago.

we do still see some homes go under that are absolute head scratchers though. personally, i would like to believe that anyone buying in todays market, in light of depreciation and high levels of foreclosure, would do more than their due diligence to determine the historic intrinsic value of th home but clearly that is not always the case. my gut interpretation is that some "need" to buy now for familial reasons and are enticed by comparably lower monthly payments. my further gut, simlar to sean in wr, is that that wave of buyers is shallow and behind them you'll be lucky to find a ripple.

marcus
interesting stuff w/ the zip codes. i'm finding some conflicts though. the town of hingham published an income distribution table on their website that had 49% of households w/ $100k+ incomes as of the 2000 census. it would be astonishing if only 30% of filers in a town like manchester make $100k. it seems to speak as much about our tax code as it does about gross income.

Excellent posts by both Marcus and Sean. To further my research on “Why aren't banks selling off their foreclosures”? There are several factors at work.

The pig in the python: Digesting all those foreclosures takes time. It's time-consuming to get a home vacant, clean and ready for sale and the system is overwhelmed by the volume, which my agent who specializes in REO properties told me. In a normal market, there are 160,000 foreclosures for sale nationwide over the course of a year. Right now he said, there are about 80,000 every month. Since it such a really big number, we'll see prices drop a lot more and deeper problems for the financial system. This looks like the late 80’s early 90’s to me all over again. After all those foreclosures, prices stayed stagnant for many years.

Accounting sleight-of-hand: Lenders could be deferring sales to put off having to acknowledge the actual extent of their loss. With banks in the stress they're in, I don't think they're anxious to show losses in assets on their balance sheets, though they’ll be forced to now.

Slowing the free-fall: Banks might be strategically holding back some foreclosures so prices don't fall as fast. They want to be careful about not releasing them too quickly so they don't drive prices down and hurt the values.

Besides the shadow foreclosures, yet another wave of distressed properties is in the pipeline. These are homes with delinquent payments for which the banks appear to be prolonging the foreclosure process. Some of that could be because they're negotiating with homeowners about loan modifications or other ways to keep them in the home. But banks also could be deliberately foot-dragging for the same three reasons listed above.

Most people making over $100K+ (there actual wages) hire accountants...proper tax planning brings reported tax "income" much lower....the more wages one earns, the less % to actual income is reported for tax purposes on line 22 of 1040....i assume this is the "income" on tax filing report the globe listed...If it is AGI, it would be even less...i don't believe tax returns as a good measure of true income....especially once wages get over $100K..there are many write-downs to Income on lines 12-18, that are paper losses...

Simple Scenario:
Worker A has a Salary of $125K/yr.
401K contribution is $16,500
FSA/Medical plans is $2,000

W-2 wages is $106,500. (this all that would show up on line 7 of 1040.
-Throw in a few "bogus" business losses (perhaps your wife has a lossing businesses, wink, wink)
-Throw in rental loss of the rental/second home property
-Realize some capital losses
etc...
Income is now significantly reduced to ~90K....then reap $10K back from IRS after overpayment...

Also, once folks start making over $150K, Deferred Compensation starts to become popular because 401K's reach limits....My point is, those rich towns have a lot more $100K+ wage earners than you think...

Regarding the incomes/zip codes discussion, there are a few things I'd like to add...

Marcus, it would be great if you could provide a link or else some search terms that a person could type into boston.com or google to get the data. I'd like to take a look.

One thing nobody has pointed out in Marcus's example is that in most cases a household income of $100k does not even come close to supporting a $1 mil home purchase. If you're trying to estimate the demand pool for $1 mil plus homes, I'd say only look at $250k plus households. Given the current credit environment, price income of around 4 to 1 is about as high most people will be able to go. That's being very generous, and also assumes perfect credit, and very little additional debt such as credit cards, car loans, student loans, etc. If no info is readily available on how many $250k households exist by town in the Boston area, I would look at the national census stats and extrapolate... Very roughly around ~10% of US households make above $100k. But only ~2% make above $200k. So as a general rule, I think it is safe to say that fewer than 1/5 of $100k plus households are also above $250k and can therefore afford a $1 mil house. Conclusion: Marcus's small pool of buyers just got a whole lot smaller. I don't say this to criticize Marcus's reasoning... In fact, all of this reinforces his point... There aren't enough buyers out there who can afford all the high-end homes out there at current prices. Either incomes must go way up (not likely especially in the short term) or prices need to come way down.

For the above reason and others, I think the mass-affluent market segment (roughly $1-2 mil price range in the Boston area) is going to get hit very, very hard. I've said this before...

Lance, try googling "Boston six figure zip codes massachusetts." That should bring the article up at the top of the results. Look at the chart--being well aware, of course, that a measly $101,000 annual salary doesn't put you into a mansion--and then go add up all the million-plus inventory in Boston plus Cambridge plus Winchester plus Newton plus Weston plus Brookline plus Lincoln plus Concord plus plus plus. Sellers are sure pinning their hopes on a lot of homeless millionaires.

#6 William’s comments are a great example of clear thinking before making a life changing purchase. He is not making the mistake so many of us have made during the housing or dot com bubbles. From what I’ve read on these blogs and then checked out online, all the foreclosures that had been bottled up during the recent moratorium will be coming onto the market now. That being the case and as a consumer looking to make such a large and expensive purchase of a home, I want to see over the next 6 months how this will affect pricing, let alone how these properties look in person. My agent told me to look at the Warren Group for their foreclosure listings.

I have both family members and friends who live in several high end and expensive towns with great school systems and many of them used their homes as piggy banks to keep up with the Jones’. For the past 2 years, some of them have been living on the edge and are now in pre-foreclosure. It pays for me to take a wait and see attitude, for my ignoring all the optimists shouting that now is the time to buy, another 6 months is not going to cost me anything and I can afford to do so. There is no way that the housing market is going to rebound again – as it once did – during the next 12 months. We will always have unrealistic sellers and Realtors taking a listing whether or not it will sell for free publicity. We will always have buyers who always pay too much for a home in any market, but I need to see how this hidden inventory of foreclosures will effect my purchase decision.

Marcus: Thanks for the info. Good stuff! I agree with you 100%. It is very difficult to reconcile this data in any other way than to conclude we are headed for a big collapse in prices. Take the W towns for example. Only around 40% of filers in Weston (02493) and the very upscale northern part of Wellesley (02481) are 100k + filers. Yet last I checked these towns both have median home prices in excess of $1 million. For sure, there are people living in these towns that have lots of assets and comparatively low incomes (think: washed-up sports stars, old money types, and retirees) but this is a relatively small contingent. Most people living in those places are working professionals who are subject to the same economic laws of gravity as everybody else.

My wife and just signed to buy a house in Cambridge. We looked at a lot of overpriced crap beforehand, a lot of which is just sitting unsold. More price corrections are coming, especially for condos. There are just plain too many condos.

As to the foreclosure shadow inventory: another reason it stays off the market is in some cases condition: the houses have been stripped and wrecked. Particularly a problem in places where there's been a lot of rapid development and speculation.

Moopheus, where did you hear that there were too many condos? My understanding is that there's actually a shortage of available units. This is why prices aren't dropping in areas like the Back Bay, South End, and probably Cambridge as well.