Uncork that champagne – the housing market is hitting bottom!

I guess it's a good thing that sellers alone don't define value [ever increasing], or that buyers alone don't dictate prices [how low can you go?]. When there is a good balance of buyers and sellers, open market and competition are quite the beautiful thing. Too many people buying, up, up, up. Too many sellers, down, down, down.

In the end, sales go through because both parties found the price agreeable. Sure, some sellers are compelled to sell due to circumstances, but they are still finding the lower sales price better than their other alternatives, otherwise they would stay put.

I get a weekly "new listings" email from one of the local brokers.
2 of the 3 listings this week were short sales.
IMHO, we've got a way to go yet.

"Three out of four homeowners surveyed by Zillow.com predict the value of their castles will remain flat or increase over the next six months."

I'd say this pretty closely matches sentiment on this blog - People really do (bizarrely) think house prices will rise in 2010. Even though the most optimistic case generally is that they will stay flat from here, and the general consensus is that there will be a moderate drop.

Bears, of course, think there will be a more than moderate drop.

I've talked about this before but it bears repeating. There is a well-known model in psychology called the “5 stages of grief”. It describes the emotions people go through when facing a catastrophic loss:

1) Denial
2) Anger
3) Bargaining
4) Despair
5) Acceptance

Judging by these survey results and the general tone of posts made to this site, it appears many sellers are still in the denial and anger stages. However, as more and more sellers reach the later stages (bargaining, despair and acceptance) panic selling will inevitably occur and prices will plummet. Study history and you will see this same story played out in every severe market crash.

Boston is still in the early stages of the correction. Prices will fall at least another 30% before this is over. Sellers are in for a very rough ride. It's only a matter of time.

It's complicated, because those people with nice homes in nice areas who don't have to sell aren't selling in this market. A lot of the homes we are seeing on the market are forclosures or otherwise distressed and will naturally sell for below the former prevailing levels. Over time, if unemployment maintains at this level and interest rates go up, then the market for all homes definitely will fall, but I'm still not sure what we're seeing is a true housing freefall. It was all so insanely euphoric before that I would call this 'crisis' a reality check.

As someone who is looking into a buying a home (1st timer), I agree that prices will go up. The reason is because a lot of buyers are deperate for good properties and overpaying (Idiots). I've placed two offers this spring for what I thought was fair value based on location, assessed value, comparables, etc. I've gotten neither and have been told that both parties were accepting offers from people going well above the asking price. It's confusing to me that we're allowing this market to get off easy and enable it to do the same thing as before. Oh well. Maybe next year.

Im seeing a lot of sold and sale agreed signs around Essex county. I have no idea if they are foreclosures or just regular sales but these homes all appear to be in excellent shape and "lived in". Hopefully this is a sign of a rebounding market.

#5. So because we have so many distressed sales and the market in nicer areas, as you imply, has not imploded, we are just seeing a normal correction. That's fine if you want to make that argument. But if you make that argument, in affect choosing to ignore the distressed sales market, then you must also have chosen to ignore that segment of the market when prices were booming. So in affect, if you ignore that segment of the market, we never had a real estate boom and we are not going through a real estate bust. Unfortunately, the reality is we did have a real estate bubble and we are going through a real estate collapse.

A survey of SELLERS? And they would say something different?

My spouse and I saw two houses yesterday. One was for $450k, dropped down from $550k in 2007. No takers yet.

The other was for just listed $470k, and we thought that there might be a possibility there, but seems that the seller is mortgaged upto $470k when they bought 2 yrs ago, and they are desperate to avoid a short sale, so they arent willing to budge an inch, so we walked.

And sellers STILL think that prices are going to pick up?

NEXT TIME, survey 1st time home buyers, who every week are looking at dozens of properties...

I think the value of my Boston condo may have fallen a bit in the last year, but not by much. What do I base this on? Recent sales in the neighborhood. Do I think I'm crazy? No. Do I think prices are headed up, up, up.? No. I think they'll stay about the same for some time. Does that make me unrealistic? I don't think so, though I may be wrong. Seems to me that the housing market is dependent on a number of factors, including unemployment rates, etc., but I also think a conveniently located home in a pleasant neighborhood in the city next to public transporation,shopping,parks and other amenities is a huge asset that will not easily diminish in value.Sometimes I think the market watchers can't see the forest for the trees.

Tom (#5): If 20% per year price declines in an asset class that has historically produced steady 1-2% returns doesn't qualify as “free fall” then I don't know what does. Home prices are actually falling faster now than during the Great Depression. Scary but true.

Long term, home prices will return to levels supported by fundamentals--i.e population, income, and prudently issued credit. Boston has at least another 30% to go before we get there. And sorry, but the “nicer” areas are not immune. Prices will continue to fall there too. If you don't believe me, just look at the rates on jumbos these days as compared with conforming loans... Jumbos are very tough to get, and you pay through the nose which is why property in the $1mil and above segment just isn't moving... This is dragging down prices in a big way. I've seen several price reductions in the W towns on the order of 30% or more from last year. One listing I've been following went from over $3mil to $1.95mil in one shot two weeks ago. Trust me, wealthy people are feeling the pinch in this market just as much as everybody else.

Here's the rationalization that occurs with home owners (disclaimer: I am a homeowner)..... the value of my house hasn't decreased from the $450k I paid for it in 2005. The reason it hasn't gone down? The house isn't on the market. Therefore it's value to me is $450k. The only houses whose value have decreased are the houses on the market. For the 95% (?) of homes that are not for sale, their value remains unchanged.

Judging the value of my house based on the 5% of homes on the market - a sizable portion of which, if not high majority, are distressed sales - is a poor valuation mechanism. Yes it's true that if i HAD to sell today I couldn't get $450, but that's moot.

You can agree or disagree with the logic used, but I believe this is the psychology behind the discrepancy.

I agree that the prices will go up slightly or remain flat but only for a very specific group of homes. Those listed in the low 300's and below are being scooped up right now by first time home buyers looking to get the 8000 tax credit before Dec. 1st. I can guarantee other sectors of the housing market, atleast in the Boston area, are not fairing nearly as well. I have a strong suspicion however that once this tax credit deadline passes, the prices will drop significantly in this sector (low 300s and below) as it is in other sectors.

YES! Time to get into a bidding war with offers 20% over my asking price!

The good times are back!

Adding onto bostonguy's comment that "once this tax credit deadline passes, the prices will drop". When interest rates increase; prices will have to drop.

Doesn't surprise me that most homeowers in the Boston area are delusional and uneducated about how much their property is worth from what I've seen in my almost 2 years of house hunting. "Everyone else's house is down in value, but MY house couldn't POSSIBLY go down in value" seems to be the ignorant norm here...

"Three out of four homeowners surveyed by Zillow.com predict the value of their castles will remain flat or increase over the next six months."

Around these parts that kind of thinking is just irrational. It's been said here a million times by the more lucid folk, but it's true. Sales will not rebound significantly until prices get closer to traditional price to income ratios. With most salary levels remaining flat or even decreasing - due to mandatory furloughs and reduction in hours - there's going to be even more downward pressure on prices.

Another impedement to increasing values will be the impending tax hikes coming our way - sales, gas, alcohol, candy, soft drinks, T-fares, Pike tolls. We may not get them all, but we're going to get more than just the sales tax. That has to take a bite out of the average persons buying power.

I'm still leaving out the impact cuts to local aid will have on property taxes. And what about when interest rates start to go back up? How 'bout all those non subprime ARMs that still have a few years of resets?

I know, I know - doom and gloom. But it seems reasonable to me that if incomes are - in effect - decreasing, then the price to income ratio will have to drop as well.

Are you KIDDING me! Boston home prices have not even seen the tip of the iceberg yet. Condos in the city down at LEAST 25% more. NO ONE is buying.

I'm of the perspective that housing prices aren't that unaffordable right now. I also think that by reaching 2001 levels a correction to value and historical trends has occurred. Yell at me for ignoring ratios, but I think the real issue today is that people don't have jobs, are underemployed, or are afraid they will lose their jobs. The foreclosures and short sales I'm worried about are those where people spent and budgeted responsibly, had rainy day money, and burn through unemployment and savings and still can't get a job. Prices are going to continue to drop until capital starts moving again and well paying and professional jobs are once again available. If that isn't fixed, predictions of another 30% drop to go is not that unrealistic. Prices today, its not based on value, it is based on desperation. Desperation is just as unrealistic as the bubble was. Sellers have to deal with it. Sideliners have to just consider they aren't sitting on equity, they are living in a house.

I've been looking at properties because I consider this a good time to enter the market. There is a lot of junk out there, but a good home in a good neighborhood is still selling and quickly. I have placed offers on three properties within the last 6 weeks, 2 at asking and one at $10K over asking. None of the offers were accepted because there were higher offers. I will add that I waived the financing contingency in each of the offers.

Joe,
I pile some more rain on your doom-n-gloom. With a national debt soon projected at $13 trillion, that's $43,333 in debt for each of we 300 million Americans. A family of 4 will soon be $173,000 in debt. At typical interest rates on t-bills of 4%, that's almost $7,000 coming out of the productive economy for each family of 4 each year. That's if we're not forced to pay down the debt; then it gets much worse.
This country's manufacturing base is gutted and won't come back with politicians' misguided efforts to re-inflate assets to placate a misguided segment of the population.

I am a first time buyer getting fustrated at sellers telling me their house is worth the same cost value as 2005-2007.

I lost 2 homes so far to unreasonable sellers who set their price too high. The real estate brokers are to blame.

Until one of these sellers get's real on asking price, I am staying a renter.

#6: "I've placed two offers this spring for what I thought was fair value based on location, assessed value, comparables, etc. I've gotten neither "

Oh... low-ball offers did not get accepted on the first two tries?

It takes two to tango... when making low-ball offers, it is expected that you'll get tons of rejections and must keep trying until you meet your match - somebody who is desperate enough to accept your "fair value". Keep trying, and stop complaining - you got to kiss a lot of frogs to get a prince.

#12. That's one arguement. I prefer the arguement that most people are clueless when it comes to economics, finance and investing. They don't understand or choose to ignore basic fundamentals that point to continued price declines. The fact they we had a real estate bubble (or any bubble for that matter) just shows how the majority of people are irrational and clueless when it comes to money.

lama (#21): That's the second or third excellent post we've seen from you in two days. Interesting stuff. Keep 'em coming...

Jason (#24): You are absolutely correct. Most people make terrible financial decisions which is why the average family in the US has a net worth of less than $15,000.

"I lost 2 homes so far to unreasonable sellers who set their price too high. The real estate brokers are to blame."

Ben - Did someone else buy them? If so, then the prices were reasonable. If not, then I agree.

#22, ben: i disagree with i wouldn't say that you necessarily 'lost' those two houses. if someone else bought them, then they were priced correctly(or perhaps your offer was too low). if nobody bought them and they went off the market, then you didn't lose those houses, then they were never available to you anyway, at the price point that you thought they were worth.

i agree many sellers are unreasonable in their price expectations. at the same time, some sellers just don't have to sell, and i don't take it personally when they don't; because my gain would be their loss, and they may or may not be able(or simply willing) to afford that loss.

This is the bottom? Wow, Boston really IS overpriced. The worst recession since 1929 and housing prices barely moved down. Nothing like falling on your knees while the rest of the country falls flat on it's face. So much for buying a house and a return to normal, decent, reasonable values. This place blows.

My husband and I have been looking for a home for a year. We have researched the market extensively and have found that homeowners who really want/need to sell will ask a reasonable price. But for sellers that are just testing the waters, such as people that have inherited a home from a relative, prices are still completely unrealistic. I base this on watching these overpriced homes sit on the market for over a year. They won't move, either, because buyers are no longer in a frenzy to buy at any cost, and lenders are being FAR more cautious about lending. Common sense is returning to the housing market, and sellers don't like it. If they are among those who bought high in 2005-06, who can blame them?