Gloomy numbers and the spring market

I went to an open house next door to me in JP. The place was hopping! But guess what? All tire kickers. How do I know? Another open house was held with in the week. I think it was a small condo and overpriced.

Scott,
The open house propaganda that some realtor group are claiming may just be that. There were several open houses within a couple of blocks to where I live ranging from modest to relatively large sized homes. I passed a couple of these homes several times during my commute and also walked by a couple times while doing errands and I did not see any activity. I'm not sure where folks are looking or where all these "real busy" open houses are taking place with all this foot traffic but it really does make me wonder.

I hope you had a nice trip Scott.

Buyers will undoubtedly get more interested as prices fall.

But if those prices fall to a point well below what one paid for their house, that is unlikely to be taken as good news...

On a practical level, unemployment continues to worsen. It strikes me as unlikely that people without jobs will be buying many houses.

So when is bottom? I'm thinking maybe summer of 2010, with prices around 1999 levels - ie more or less a 30% drop from peak.

You call those gloomy? Mish dishes gloomy on the failure of Copley Square's 441 Stuart St project (no sale at auction at $100/sqft) and what this could imply for the Boston condo market (current sales at $600-900/sqft) [tinyurl.com/c5r7zz]:

This week, the building at 441 Stuart Street was offered to the public through a foreclosure auction. The property was most recently purchased in 2004 for $37.5MM with the intent of converting the building to condominiums.

The auctioner opened at $30MM and asked if there were any bids. There were not. Next he cut the bid in half and asked for $15MM, and the bids that followed were $15.1MM, $16MM, $16.1MM, and finally $17MM. There was only one 3rd party who bid the $15.1 and $16.1 against the bank. The lender bought the property back at $17MM.

Nevermind the fact that the highest 3rd party bid for the property was less than 40% of the known debt, consider the fact that the number represents only about $100/foot. Remember that this property is in Copley Square. If retail prices for completed condos are $600-900/SF and construction costs run $150-250 per foot then that’s a margin of 40% or better - isn’t it?

Sunshine & lollipops -- please, please come spin this for us!

According to the Real Estate Ministry of Propaganda (also known as the NAR) fewer than 2% of open houses lead to sales. So open house activity by itself is a pretty meaningless gauge of the market. My personal feeling is that open house attendance is up because it's spring and people are kicking tires and waiting for prices to come down. The cynic in me also believes there is a curiosity factor at play-- just as people can't resist rubbernecking as they pass a car accident, they are also curious about the carnage in the housing market.

I predict a double whammy for home sales in MA this spring:

1)signed contracts will be way down as buyers continue to wait for prices to fall further
2)conversion ratios (the % of contracts signed that actually close) will also be down because lending is tight and appraisers are being much more conservative

These factors combined will make this one the worst years on record. Count on it.

I went to an open house in Roslindale on Sunday of a property that is significantly overpriced in my opinion, and it was dead. Location is great, but in this market it's price and no one is going to respond to overpriced properties (I don't trust Zillow necessarily, but this was 30% above those numbers.) I don't know based on what was paid for the property in 2003, if they can afford to sell at a loss or the same as they paid, but it was a good illstration of what is happening. If they need to sell, the owners will have to bring the price way down (25%?). If they don't need to sell, and don't want to lower the price, I am betting they will just stay put or rent for now.

the most surprising trend we're seeing is that the sale price to last ask price spread is widening. roughly 30% of sales over the last 3 months have sold for less than 90% of the final asking price. even w/ big brother's increased manipulation the number of properties going under agreement in our target market is hovering around 80% of this past winter's levels and a higher than normal amount of these are getting kicked back. regardless of open house traffic, which i honestly don't know or care about, this is shaping up to be the spring that never happened. it looks like the resistance to price drops in our target market is finally chipping away.

Sunny Jim - Well I won't make the obvious point that commercial is a far far different world from residential. Instead I'll just point out the fact that regardless of the fact that the Stuart Street building didn't sell for $100 per foot, there ARE properties in the Back Bay that are selling and *have* sold for over a THOUSAND per sqft within the past few months! Certainly those are fewer in number, but regardless, there are lots and lots of properties zooming into contract within weeks after going on the market for anywhere between $750 to $950 / sqft. Look it up yourself! I can provide examples. If you're waiting for the day when a Back Bay condo sells for $100/sqft you're gonna be waiting a long long long time, my friend!

Anyone with their finger on the pulse of this market in downtown Boston will tell you: there's a depressing dearth of good quality listings. I hear this from anxious buyers all the time: where's the inventory?? Anything nice sells within days, often at higher than asking or with a bidding war. There's a lot of dreck out there. It's still very solidly a seller's market in the more distinguished nabes in the downtown market. Sorry!!

I went to 6 open houses this weekend south of Boston, houses in the 750k-1mm range and it was absolutely dead. My wife and I were the only lookers at any of them, though we did see a pair of buyer's agents at one of the houses. Some of the houses were priced competitively, others (generally newer listings) were just plain overpriced. Feeling like the only prospective buyers out there certainly doesn't create any sense of urgency.

Its all about price and condition. With an old housing stock, Mass housing tends to be significantly undermaintained. There are actually some great buys out there, with some well maintained houses selling for less than the cost of re-construction. However, many houses for sale simply need to be bulldozed, and it is a shame they are selling for anything more than the cost of the land. With the inflation that is in the pipeline, there are some houses now on great lots, in great towns, that have been loved by their owners, that will be far more valuable in 10-15 years. You need to be selective though. If you look at price alone, you may wind up with a maintenance nightmare. Some houses are too expensive even if they are free.

"So when is bottom? I'm thinking maybe summer of 2010, with prices around 1999 levels - ie more or less a 30% drop from peak."

I doubt we'll ever reach 1999 prices ever again. People are too greedy to let go of the 2005 fake equity that they thought they had but never really did. I still see average houses selling for $340k-400k, just like they were in 2004, so nothing makes me think that will ever change.

The ones who have to sell will try to sell, but most will just sit on their house, like they're doing right now. We'll likely never reach a level of normalcy here ever again, the last 10 years have done lots of damage..

RE Sunny Jim -- it costs far more than 150/250 a foot to build a downtown condo --try 400 + a foot ... plus all the soft costs --; and the affordable requirements (they are like a 10% tax..)
and well --as to lance -- I bet you believe when the sun sets -- it won't rise in the morning... Lending is tighter - but not ended -- my 25 yr old niece just bought a condo this month -- people are buying -- and the (over)supply is not that much --other than a few troubled towns...

Of course there's more foot traffic at open houses. It's Spring - there are more of them and people want to finally get outside and do something. I'm betting there are more tire kickers than buyers. Prospective buyers may want to get a good look at what's out there and see if the properties are in any better condition than most of what's been sitting on the market.

Ultimately, prices are still too high for the Spring season to translate into anything remotely resembling a turnaround - regardless of how the NAR spins it.

And for the record "Sunshine and Lollipops" may be one of the worst 5 songs ever written/recorded.

A number of housing-related articles on Seeking Alpha suggest that we're in the eye of a housing hurricane. Last year the country dealt with a wave of foreclosures related to subprime loan resets, but the bulk of Alt-A and Option ARM loan resets do not occur until the end of 2010/early 2011. And given lenders' LTV requirements, many mortgagees will not be able to switch to low rate fixed mortgages. I think the downturn in housing will take years to play out.

According to Sunshine & Lollipops (who I guess is a realtor), Anything nice sells within days, often at higher than asking or with a bidding war. Please provide us with these addresses, as I haven't seen properties selling within days with bidding wars.

Sunshine, I thought you thought Penny Savings Bank and the Red Cross project were good projects? Yet oddly, per principals, they are having trouble selling. Somehow I believe them a little bit more.

Overpriced - true that most people with discretion will hold off sales if they can't get their number. But there will be forced sales, whether from divorce, death, transfer, or job loss, and those sales will set the market price. There will be less inventory going forward until the market accepts the new reality.

How does this open house traffic compare with 2 years ago?

Sunshine & Lollipops (#8): Great to have you back. We've missed your posts. They're always good for a laugh.

Middle (#10): Good points. I think you're on to something.

Overpriced Boston,
It has nothing to do with what you or I think. It all comes down to fundamentals. If prices do not come down to reasonable price-income levels then the homes will not sell, unless someone wants to make the same mistake and be way over their head like so many folks are now.

It's not 2006 anymore. Many now realize the go-go days of the runup did a lot of damage to the financial stability of households and they do not want to fall into the same trap

What I would give for a summer cottage along the St. Lawrence! J'adore Quebec!