Low prices, the new magic potion

This reminds me of 2000. After people watched the latest tech IPO rocket from $10 to $200 and back down to $50, they thought they were getting a great deal. And then the bubble never re-inflated and that $50 stock dropped further and proceeded to be range bound between $5 and $10 for the last 8 years.

New home sales actually collapsed 23.3% from last year, while prices dropped 12%. As usual, when you look at the front page of a newspaper or tune into the news, you will find that the media finds it easier simply to cut and paste industry press releases rather than to report.

Nonetheless, it is possible that new home sales volume has bottomed for this cycle--at 30-year lows. Chances are, it will drag along this bottom for some time. The inventory of completed homes, while relaxing somewhat, still remains even higher than it was during past housing booms. In other words, there are a lot of unsold new houses still left to move. There is also a very wide gap between new and existing home sales, because a third of existing home sales represent distressed transactions. Builders find it very hard to compete with foreclosures.

The most important thing for people to keep in mind, when they read headlines about "bottoms," is that we are watching for multiple bottoms. We are looking for bottoms in volume--in both new and existing home sales, plus residential investment and housing starts--as well as bottoms in prices--again, for both types of sales. Last time around, in the early '90s, prices bottomed five years after residential investment did.

Most of the reports you read are written by people who don't understand this. The others are written by people who do--but want to make sure you don't.

For those who didn't read the Christian Science Monitor piece cited above, I'd like to emphasize the magnitude of the price drop needed to lure buyers back into the market:

"In Lee County, the median price has dropped from $322,300 in 2006 to $88,500 in May 2009, down 73.5 percent."

With a 75% off sale going on, I can understand why people in FL are buying... Likewise, with prices only down 15-20% in Boston, I can understand why people here are not buying. Prices in Boston have a LONG way to fall before they are once again attractive for buyers.

According to the latest Case Shiller Index data for "MA-Boston" posted today, (the index of) prices in the Boston area dropped 7.2% (from 160.34 in May 2008 to 148.77 in May 2009) year-over-year while its measure of sales volume (sales pairs) also dropped 18.9% (from 2335 in May 2008 to 1893 in May 2009) year-over-year.

"...while also telling the story of the $359,000 house that, foreclosed by the bank, is now on the market for $65,000."

Or, is it a $65,000 house that once sold for $359,000?

Price is everything. What I'm seeing is sellers listing their 2500sq ft 4bed/2.5bath 30 year old colonial for $600K+, but more often than not, the ones that ARE selling are eventually selling in the $500K+ price range. The serious/smart sellers list in the $500K's initially and their home goes UA quickly.

The over-priced sellers often pull them from the market, which is very perplexing and vexing to me (a buyer). Why in the world would someone be selling in this market if they do not have to sell?

Nearly all the "increase" in sales activity is in starter homes under $300k by buyers using their $8K money from the government as a down payment.

About 1 home in every 3 homes sold are foreclosures or short sales. The usual "move up" buyer everyone has counted on for the past decade (over 500K - 900K) is mostly non-existent, as credit is still difficult to get, unemployment is high and consumer confidence is still very weak.

Coupled with sellers who paid too much for their home between 2003 and 2007, need or want more than the present market will bear and are still in denial, means that market will get worse before it gets better.

The moritorium which prevented many short sales and foreclosures has ended and there is a huge spike in the notices to foreclose. Buyers have the upper hand and should sit tight until the Winter.

about seven or eight years ago, my husband and i were looking into relocating outside of the boston area. we looked near raleigh, nc, where my brother-in-law and his family live, and we looked at austin, tx, and denver, co.

those places were all WAY more affordable than boston then, and they will always be way more affordable than boston. just because prices have dropped in other markets to the extent mentioned above, does NOT mean they will drop here in the same way.

#8 - Having relocated here from Austin just 4 short years ago I can tell you that Boston area housing is (and has been) generally more affordable than Austin, especially if you consider lot sizes and land taxes. You might also want to take a look at monthly utility/water bills as those costs really should be included in determining an affordability factor. The biggest difference I found between the Austin and Boston markets are (and have been) expected property amenities and conditions. Granite/marble kitchens & baths have been standard in the Austin marketplace for a long, long time. I think they're much further ahead in "green" building/remodeling too.

All of which leads me to ask a question of folks - is it true that low prices are the new magic potion or that you'll only pay for what you're actually getting?