Our stubborn Boston prices

There are high levels of seasonality for April - June numbers. Was that factored in?

That being said, I used IAS services to value bespoke CRA pools. I am a big fan.

I don't know why you keep forgetting this, but, yet again, its those year-over-year numbers that are important when looking at housing.

Also, you're downright fabricating that Schiller said prices were rising here again. All he said is that we haven't had the outright collapse that Phoenix has experienced, but neither did we experience the sudden upswing in prices that they experienced (ours was more constant over a decade).

Yeah, but I also heard that volume was down 50 percent or something. I'd like it if Mr. Van Voorhis could comment on sales activity.

Real estate prices are still too high in Boston... Who is the marginal buyer in this area? Nearly everyone who could afford a home has one, so the only hope for a recovery is for young couples looking to get in or migration from other parts of the country or from overseas. In general, even families with above average incomes will struggle to buy merely an average house unless they have a high tolerance for taking on debt. In general fair pricing occurs when the AVERAGE family can reasonably afford the AVERAGE home.

It does not make any sense to reference Shiller's comments against this report. This report is based on median price, not the Case-Shiller method which records price changes on identical properties' repeat sales. Median prices tell more of sales mix than price change. From the article:
'“We’re seeing a mix shift in home sales and that’s manifesting itself as increased pricing,” says John Burns, CEO of John Burns Real Estate Consulting.'

The last quote in the article dismisses the relevancy of median price.

Home "fair pricing" in the expensive Boston Suburbs has never been about the "average" family and it is just not going to happen. We are in the middle of this recession and there is no reason to think that an "average" person (choose how you want to define this or "fair pricing") is more likely to be able to purchase in any of these areas than they were 2 or 3 years ago. The market in Weston, Newton, Brookline, Lexington, Sudbury, Wayland, etc......... is no different than that of Westchester County New York or Bethesda - Chevy Chase - Potomac Maryland or the rich suburbs of any Northeast major city. Prices may drop, but it would be very surprising for prices to drop to "fair pricing" levels for "average" people in Boston unless we see the same situation play out in all these other geographic northeast areas. I doubt that this will happen. USA home pricing is never "fair" ; it simply reflects what the market will bear at any point in time. One can argue what the IAS price data really means, but what the figures don't show a massive drop in prices.............

With regards to the comments about "fair" pricing and the "average: would-be homeowners . . .

I don't want to assume but I think the original poster wasn't even talking about the swankier suburbs. I know I agree with them and I have no desire to live that far away from the city. My wife and I make well above the median household incomes for the three towns (Somerville, Medford and Arlington) we're concentrating on, have a modest downpayment, reserves, excellent credit, no plans for kids, the whole nine. In theory we're prime first time homebuyers. That said, prices are still such that if we were to try and follow the 30% (roughly) gross income to mortgage ratio we basically wouldn't be able to buy anything that is even halfway decent. And no we're not looking for fancy, redone kitchens and baths or anything like that--a small, modest and dated but solid single would suffice.

We ran numbers this weekend on a house that would have suited us if it were in a better location and our monthly PITI was going to be around $2500!!! And this is before you've paid any utilities, food, transportation, etc. How can my generation (I'll be 30 tomorrow) and future ones have their own home, pay their bills on time and still try and plan for retirement? In the age of unemployment and real declining wages and inflation, not very well I suppose. Probably not in Boston . . .

Discouraged more and more everyday and seriously considering relocating . . .

Bostonrunner (#6): Just like everywhere else, home prices in Weston and Wellesley will return to levels supported by fundamentals. While I agree these towns will probably not be affordable for "average" people anytime soon, I do expect that households earning the median income in these towns (around $200k per year for Weston and slightly less for Wellesley) will be able to purchase a median priced home with a traditional financing. Do the math (or just look at 80 plus years of economic history) and you will find prices should be around 3x income. Yet both Weston and Wellesley are still above 5x income. Prices are dropping fast but there is still a LONG way to go before they hit bottom.

for the bulls here; who is going to buy these houses, are jobs and down payments just going fall from out of the sky?

July 16 (Bloomberg) -- U.S. foreclosure filings hit a record in the first half, a sign that job losses and falling property prices deepened the housing recession, according to RealtyTrac Inc.

More than 1.5 million properties received a default or auction notice or were seized by banks in the six months through June, the Irvine, California-based seller of default data said today in a statement. That’s a 15 percent increase from the year earlier. One in 84 U.S. households received a filing.

“People are losing their jobs, seeing their income go down and are underwater on their mortgage,” Richard Green, director of the Lusk Center for Real Estate at the University of Southern California in Los Angeles, said in an interview. “It’s a toxic combination.”

Home prices in 20 major U.S. metropolitan areas dropped 18.1 percent in April from a year earlier, according to the S&P/Case-Shiller index. The unemployment rate rose to 9.5 percent in June, the highest since 1983, bringing the total number of lost jobs to about 6.5 million since the recession started in December 2007, the Labor Department said.

as long as there are buyers that can keep this housing market going, and demand outpaces supply, prices will remain at the high levels for this area. i agree with Bostonrunner.

and reduce media, i have to tell you that my husband and i make also well above the median income, could only afford a home WAY out in the icky burbs, and our housing costs (PITI, utilities, home maintenance) for a modest home for our family (two kids) are over $40K a year. we are also in out mid-40's and that much closer to retirement. i hope we make it!

that is the reality. we have seriously considered relocating to another part of the country many times (we have no family here), but i am a scientist, and the only part of the country that offers the same kind of opportunities is the Bay Area, and that is even worse...

While it is certainly true that housing prices, on average, would still need to come down in Eastern Massachusetts to become "affordable" to most young and first time home buyers, what people here are not addressing is that this region has one of the countries most affluent demographics and that those with money will still buy in Weston, Concord, Chestnut-Hill and the like without much concern for price or potential devaluation.
And whether we common folk would admit it or not, there is a reason those properties are so expensive. So let's not try and compare high end neighborhoods to the rest of the "accessible" towns. It's a whole other world for the rich and not-so-famous.

Here's the problem with the theory that the more affluent towns have always been out of reach for middle class folks. Before the historic and irrational run up with RE prices in the last 10 years there was to some degree affordable properties available in the more desirable towns like Winchester, Newton, Belmont, Concord, Brookline, Cambridge, etc for middle class folks because there was a certain amount of stock on the lower end of mthe market that enabled folks with good combined incomes to buy starter homes in these areas. The problem now is that these starter homes in these more desirable areas are fundamentally out of reach even for folks with very good combined incomes. Sorry but a 2-3 bedroom home in need of $150K in repair should not be worth $500K. And proof is that prices are still declining everywhere.

Max and others,

I love you assume that high net worth people will just be willing to buy a property, no matter the size or condition, based on where its located. For the most part these people are well off because they are intelligent and I cannot see a smart person justifying buying a 700 sq. foot condo in the South End for $700 sq. foot because of its location.

I've said this before but it doesn't seem to sink in... I know the Weston and Wellesley markets very well. I would estimate only 10-20% of buyers in these towns are members of the "too rich to care" club. The rest of the buyers (80-90%) are well-paid working stiffs-- doctors, lawyers, financial professionals, consultants, and the like. Sure, they make more money and can afford more expensive houses. But they are in pretty much the same financial situation as people buying houses in less expensive towns. That is, they need a mortgage to buy a house, they don't have infinite financial reserves, they are dependent on their jobs for income, etc.

In the current credit environment, it is actually MUCH more difficult to purchase in Weston or Wellesley than it is to buy in lower priced towns because almost all buyers need a jumbo mortgage. (Paradoxically, the more money you make the harder it is to buy a house.) Long story short, the more expensive towns around Boston will take a HUGE hit. Check the current spread between listing $/sqft and sold $/sqft in these towns... Prices are falling fast.

From Karl Denninger. Just another example that while real estate may be local, the credit market is global. And it is credit (and wages) that drive home prices.

*FLASH* Mortage Insurance BOOM!

This is REALLY BIG folks:

NEW YORK, July 16 (Reuters) - Mortgage insurer MGIC Investment Corp reported a wider quarterly loss and said it will stop writing new business as losses mount in the battered housing sector, sending its shares down 14 percent in premarket trade.

You basically cannot finance a home purchase with more than 80% LTV (loan to value) without private mortgage insurance - that is, insurance that covers the lender if you default and they take a loss.

MGIC (NYSE: MTG) is the largest issuer in this area. They said they will be "trying" to capitalize a new company to write this business, but their continuing losses - which, by the way, they said they thought they had under control last year after repeated flirtations with going under outright - has apparently forced this decision.

There is absolutely no way to read this as anything but an outright disaster for the housing industry.

We need to force lending back to 80% maximum LTV (20% down payments in CASH) and 36% DTI (debt-to-income) ratios maximum, but the housing industry has continued to rely on and demand access to money on looser (that is, more leveraged) terms.

The problem is that there's no way to do that and turn a profit, as MGIC continues to show. Between them and PMI, the other "big" player in this space (due to report in August) they provide the backing for these high-LTV loans - backing that is now disappearing.

Let me be clear: this sort of lending needs to go away, but essentially the entire thesis behind those who claim that we're "bottoming" in the recession and the housing market depends on the availability of private mortgage insurance so these loans can be funded, securitized and financed, including but not limited to funding by Fannie and Freddie.

Put a fork in the calls for a bottom to housing folks - we're going back to sustainable lending whether the Realtors Guild and Housing Crooners like it or not.

With the death of the "housing has bottomed" call will come an end to those who claim that the economy has turned. It may take an hour, a day, a week or a few months before these folks realize they were wrong, but there's no way around the conclusion given this set of facts.

Why does the author refer to the fact that prices have dropped somewhat from their outrageous levels as 'housing misery'? Please bring a lot more 'misery' to this area if that's the case.

# 16 Thatsright, the reason price drops are deemed as "misery" is that the majority of people in this country are borderline broke, and their home equity is EVERYTHING in terms of net worth to them. If all my dough was tied up in one illiquid, depreciating, highly leveraged, high-maintenance "asset", I too would be miserable...