Talk about "good" real estate news has some pretty worked up

"Believe it or not, I am sympathetic to the prices-are-just-too-high- around-here crowd. My wife and I wrestled for years with the idea of relocating to another state with more reasonable home prices....So why would I be cheered by the prospect the real estate market is stabilizing? Well my ability to make a living, like many others, is dependent on the economy not getting dragged off the cliff into another Great Depression. And I can’t see how a total collapse of the housing market would benefit anyone, even those hoping to crack the tough Boston housing market."

Scott: do you think it would be better for families to leave the state if the high prices persist and they cannot afford to buy a house here? How will that help our local economy? If prices continue to stay high, then that is what could happen.

As for buying an old house and renovating, we've done that and know what it is like. Now that we have two small children, it becomes infeasible due to the *still* very high renovation costs as well as having to cover the costs of two residences due to health hazards with renovating old homes (lead paint, asbestos, mold, etc.).

I have very good friends that are expanding and renovating their little old house right now, and the cost overruns of the project are killing them ... they really don't know what they are going to do and I hope they don't end up having to sell their home.

We have other friends that just couldn't stand renting any more and ended up buying this past winter, although they are very stretched to make the PITI payments and don't have much $$ in reserves and if one of them loses a job, they'll likely lose the house within a few months.

Our solution is to just keep renting. It isn't perfect, as I'd really like to be a homeowner again, but I just cannot rationalize paying so much more $$$ to own. I guess I am in the minority, as I am continuously shocked at how much people are paying for homes right now.

I agree that having the economy stay how it is, or get worse, will be bad for most all of us (well, except the banks ;) ), but it seems to me that saying that we need to keep the housing prices up in order to keep our economy working is admitting that our whole economy is a house of cards.

I think it is more important that the job maket improve and stabilize. Basing the health of our economy on the real estate market hasn't historically worked very well for us. With good jobs, people have a lot of choices of where and how to live.

Right on Scott! I too posted that I thought the Boston market/housing market was nearing a bottom and got some pretty tough responses. Boston historically has been an expensive place to live and probably will always be because of the schools, amenities, lack of land, etc.. I do not believe it can fall as hard and far as some of those other areas. My analysis was based on looking for a home for myself this past year as well as selling my current....I can happily report that I bought a place in a desired suburb in May...and just got an accepted offer on my current residence in a highly desired location with 6 offers in week 1 including 2 at asking and 1 above.

All people like myself, Lance, Charles and Hung Wang having been saying for the past couple of years on this blog is that home prices need to be based upon fundamentals. Where that price point lies is open to debate. Some say it's 3 times income, some say it's 2000 prices or earlier. In the end prices will revert back to fundamental levels, it's just a matter of how long it takes.

Home prices are driven by one thing only, the ability of people to service the debt. The ability to service the debt in turn is tied to wages, interest rates, down payment requirements, credit availability, etc.

Housing can correct back to long terms trends (that is, go lower than it currently is) WITHOUT our economy falling off a cliff. The most recent real estate boom was in large part due to a speculative bubble in debt, as well as secular shift in attitudes towards housing. To view housing as a "lifestyle investment" is healthy, but to view it as a financial investment is not. Savings and investment should always take place in addition to paying the mortgage every month. Unfortunately, most people have been led to believe that the best path to riches is through real estate price appreciation. An unwind in both debt and attitudes in housing would be healthy for us all (except maybe real estate professionals) in the long term.

I already own numerous properties and am certainly not "praying" for prices to come down. I am being objective, and using my investing experience (20 plus years in real estate) and ANALYSIS to refute and fact check the "it's a great time to buy" crowd who generally rely strictly on hype, emotional prodding, and NO analysis. That being said, the media reports do not accurately reflect what is really going on out there. Borrowers who have not made payments in many months who have not been foreclosed on, enormous shadow inventory, and a
pathetic attempt by govt. to create the appearance of helping homeowners, while
the real agenda is to prod up the under-capitalized, over-leveraged banks...

the

I do believe people get hot about this topic because yes it can be frustrating to be "shut out of " a property or a town because of income and prices. However, I too have been investing/buying real estate since the early 1990s and remember that even back then I was frustrated that on my income (which was decent compared to the average at the time) I could not buy a great property in downtown, Cambridge, wellesely, etc. I have bought and sold numerous properties including my most recent and all I can say is based on the activity levels I'm seeing, the properties out there (at least in the communities I've looked at) things are picking up and people will be making the payments..including me. There is definitley some room to fall in the higher priced properties but I don't see the level of decline we have seen these past 2 years....

"Many offered fact based rebuttals to the idea the market may be turning around, but underlying many of the responses is the subtext that if you are arguing the market is stabilizing, you must be some scheming homeowner or worse, evil-doing Realtor."

Wrong, and insulting. I believe one can point out that there are many good reasons why home prices will continue to slide, that it's reasonable to point out that a decade of unchecked/fueled appreciation is not good if it grinds the market to a halt in the future, owner or buyer alike, and one can do this without suggesting that anyone who thinks differently is a schemer or evil-doer.

It's when you make these grand, sweeping statements that you'll get heated responses - it should come as no surprise!

"Many offered fact based rebuttals to the idea the market may be turning around, but underlying many of the responses is the subtext that if you are arguing the market is stabilizing, you must be some scheming homeowner or worse, evil-doing Realtor."

Well Scott, many of us who post here use common sense and facts to arrive at our conclusions. In contrast, most of the bulls ignore economic fundamentals and focus on short term indicators (e.g. housing prices up month over month used an indicator that we are at the bottom). If you go back and look at the "doom and gloomers" posts over the years, you will see that they have been pretty much spot on in their analysis. So, they have the track record to back up that subtext.

The people who are hoping and praying for a prolonged decline in housing prices are either the ones who shouldn't be owning homes in the first place or who think they DESERVE more than they can afford. How can anyone making a decent living not afford a house here? I guess they don't consider a 1500 s.f. 3 bedroom ranch for $300-350k to be a habitable place of residence. These are 20-somethings who grew up as children of rich baby-boomers who have expectations of owning a big house like the one they grew up in. No problem with that, except they want it NOW before they turn 30. Keep in mind your parens couldn't afford a place like that until they turned 40 or 50, so DREAM ON!

Scott,

There is no net gain to the housing market when prices fall or rise. Consider rising prices: the asset owner "wins" by the amount of the rise and the asset buyer "loses" by the amount the rise.

There is a problem when asset prices are inflated beyond their fundamental value by exogenous factors such as increased leverage or government intervention. It is not sustainable and/or it robs value from other assets.

There is also a social cost of inflated home prices or, more generally, the perception of high cost of living: People leave. America's workforce is increasingly based on the knowledge economy and knowledge is portable.

You make an unsubstantiated claim that stable housing prices - and the choices we make to support stable housing prices - will avert a Great Depression. Why? How? (Hint: see Hung's post) What is stable? What are the consequences of letting homeowners gently delever instead of letting home prices normalize?

I will be without subtext. Unless we enjoy a massive and immediate (2-2.5 years) reversal in our economy, home prices must fall unfettered or it will contribute to a nasty, self reinforcing feedback loop of stagflation.

Isnt it odd that so many people invest so much time reading and posting on real estate blogs.. even though they state repetitively that a house is a terrible investment and prices must fall (even though many houses are already priced BELOW contruction cost) ?

I have no interest in investing in rare Beanie Babies. And no surprise, I dont read blogs on Beanie Baby prices or post comments on them.

Yet somehow, so many people who despise housing find all the time in the world to describe why the prices must fall. Hmmmmm....

Scott-

I'm one of the commenters who criticize the bullish posts on here. I'm not a homeowner, but I don't want to see a prolonged slide. But what I see isn't the same as what I want to see.

Trying to determine signs of the bottom from the monthly machinations of the market is like trying to figure out when it's high tide by watching the waves break. Yes, at some point, you'll hit the high water mark, and each wave contains some amount of information about what the tide is doing, but watching a single wave, even in relation to the last one or the one 12 waves ago, doesn't give much useful data. To get a better idea of what the tide is doing, you need to think about why the tide behaves the way it does.

The housing market is the same way. If you want to know what the housing market is going to do, you're much better off thinking about why the market does what it does than worrying about small variations in the charts. Is income rising or falling? Is there inflation? Is population rising or falling? Are there hordes of people buying on speculation right now, and will these same hordes be around in the future? Are future changes in financing terms going to make people able to afford more house or less? Do current market conditions favor a particular group of people (large down payment, first time home buyer, unmarried couples, etc) and are you in that group? are enough people in that group that it's having an effect on the market? These are all more relevant questions than, "what did the numbers do this week."

Also, when there are numbers to report, they need to be reported and analyzed in context. Are MA foreclosure numbers drastically different than the rest of the country? What effect did the foreclosure moratorium play in this? (Actually, I haven't seen a single post that has really addressed the issue of the pig in the foreclosure pipeline.)

Scott, I know you're reporting these stories neutrally, but many of the underlying facts themselves are spin. Approach your sources critically and with a bit of skepticism. That's all we're asking.

Scott, you miss a big point - a lot of us are simply interested in accurate analysis. Not to brag, but I could go out and write a check for a house in Wellesley tomorrow. I'm not in a rental because I can't afford it. And while I don't know the finances of anyone else here, I'd really be surprised if the other "bears" here aren't well off as well.

Caring about accurate financial analysis has real world benefits...

I was doing real estate development before I sold out in 2005. I love it, and would love to get back into it. Which I could if the market were going up. (Developing into a falling market is not much fun). So I actually WANT the market to go up.

I also want it not to rain all summer in Massachusetts. But it is what it is. As an adult, I can take my desires out of my analysis. Aside from the desire to be accurate.

I recognize this may sound strange, but its really possible to love accurate analysis for its own sake.. Not because one "wants to buy a house"

And though I'm far from a conspiracy theorists, I do believe in incentive structures. Its hard to ignore how misleading mainstream media has been on this market.

On which front, I look forward to seeing if Month over month numbers will continue to get played up as we go into the cyclical down side of the year...

WSJevons hit the nail on the head with that one... Especially the part about the social cost of inflated home prices. Great post.

"Scott, you miss a big point - a lot of us are simply interested in accurate analysis. Not to brag, but I could go out and write a check for a house in Wellesley tomorrow. I'm not in a rental because I can't afford it. And while I don't know the finances of anyone else here, I'd really be surprised if the other "bears" here aren't well off as well."
So what does your financial situation have to do with accurate analysis?...how do we know you are not fabricating your wealth? are you willing to provide evidence to prove that what you are stating about your well-offness is accurate?

So what does your financial situation have to do with accurate analysis?...how do we know you are not fabricating your wealth? are you willing to provide evidence to prove that what you are stating about your well-offness is accurate?

charles's point is very simple to understand. Scott, and the bulls, are the ones who introduced glib, unsubstantiated assumptions about the financial situations of the bears into the conversation, with copious innuendo about bitter renters who don't earn enough to buy a house. Anyone who assumes housing bears are poor is shockingly unfamiliar with the writings of a lot of very handsomely compensated analysts and money managers. I notice, too, that my own fairly lengthy response to this question never appeared on the thread, yet this little anti-bear ad hominem gem predictably sailed right through.

"charles's point is very simple to understand. Scott, and the bulls, are the ones who introduced glib, unsubstantiated assumptions about the financial situations of the bears into the conversation, with copious innuendo about bitter renters who don't earn enough to buy a house. Anyone who assumes housing bears are poor is shockingly unfamiliar with the writings of a lot of very handsomely compensated analysts and money managers."

Ok, I just finished re-reading the blog and all responses, and not anywhere did i read about bitter renters...so again what does charles or any "bears" financial well-offness have to do with accurate analysis...the correct answer is they have no relation at all!!!

For those of us old enough to remember the Stock Market crash of October, 1987, followed by the death of the “Massachusetts Miracle” and the demise of all the mini-computer companies (WANG, PRIME, Digital Equipment) between 1989 and 1993, those years were not a good time to buy a home. In 1988, mainly due to pressure by my wife to buy a larger home, I sold our home in Dover and bought in Weston and I regretted it until I sold it in 1996 (it was a fixer). After deducting for commissions (that number is a huge load and based upon the amount of work of my “top producer” agent – who never sold anything until she received her R.E. license but was a “friend” of my wife) we didn’t come close to breaking even after handing her nearly $75,000.

We now find ourselves in the same predicament with our current home. We thought about selling for the past 2 years, but we couldn’t reconcile that we missed out on not selling at the peak of the market. Now that prices in our town have dropped anywhere between 20% to 40% (between original asking and selling price with a 9+ month DOM), plus adding on the sales commission and all those years of paying taxes, maintenance, insurance and a mortgage, we would not even come close to breaking even.

Whether one is a buyer or seller, we all buy and sell in varying market cycles and right now we’re in the middle of a recession – a very serious recession, unlike all the prior recessions. The whole “move up buyer market” is pretty well dead. They either can’t sell their homes or sell their homes for a profit if purchased between 2003 and 2007. Coupled with our coming 10% unemployment rate, not too many younger people want to sink $800K or more in a jumbo loan and take a chance. Their 401k, pensions, stock market portfolios and the rest of their wealth took a huge hit in the past year. This is very, very serious.

I don’t read in your blog posts (outside of the readers who comment on this blog) enough about the seriousness of these issues. Unless you’re old enough to have been a homeowner in a prior recession or two, you need to take off your rose colored glasses, as the housing market does not always recover in a timely fashion. As an example, the stock market, when it went bust in 1929, didn’t recover until the mid 1950’s. Many housing busts take up to 8 years if and when they recover. Until I see a huge influx (into our high taxation State) of thousands of jobs providing over $100K, there won’t be a recovery here. Many companies move to areas of the country where they pay lower taxes and their employees and afford to buy a decent home for $300K.

BTW - I second Lance's post about WSJevons, as it is excellent.

The last post by InvestorAlex was spot on, insightful, detailed analysis (with personal examples) of our current real estate situation. I wish he had written the column instead.

realist - if you read back through this blog, which is an ongoing conversation that many of us have been posting on for years, you will see plenty of innuendo that the housing bears are just poor disgruntled renters.

Like so many things, a bit of due diligence will do wonders.