Will price corrections revive slumping market?

Nytimes_pg1_100405_3After a series of front page stories on the real estate bubble in the Boston Globe this year, their parent company, The New York Times, put this headline on page one today: "Slowing Is Seen in Housing Prices in Hot Markets."  Citing statistics about slowing sales, rising inventories, and flattening prices in Boston and elsewhere…

The question remains whether all of this represents a momentary cooling
off of some overheated housing markets, or it presages a more
pronounced downturn that would end a decade-long boom.

Some economists and commentators have for years predicted the bursting
of a real estate bubble, and previous slowdowns have turned out to be
relatively brief pauses before prices started accelerating again.

But with mortgage rates now rising, the cost of gasoline hovering at or
near $3 a gallon
and house prices in some areas out of reach for many
families, brokers and analysts said they thought that this slowdown
could be the real thing.

Yesterday’s blog post foretold one of the reasons for the slowdown:  "sellers still expect to reap double-digit price appreciation
each year."  Leading listings agents quoted by the Times say
overpricing is causing the market down to slow down, but that’s not
even on the short list of factors economists at the National Association of Realtors are watching to identify markets headed for a bust.  While we’ve been tracking expired listings as a leading indicator, and others in Massachusetts are watching record high inventory levels, one of the most comprehensive list of factors we’ve seen on why the housing market is headed for a correction or crash is coming out of San Francisco. 

What’s your take?  If sellers adjust their price expectations,
will the market take off again or more serious fundamentals leading to
a housing recession?  Post your comments or call 617-876-2117
to record a 1 to 3 minute sound bite (which we may use in a future
podcast).

Related Articles

God is in the details

Move over St. Joseph, patron Saint of Home Sellers, a new saint’s in Beantown, home of two millions Catholics.  Home buyers who have been praying for a decade for an opportunity to buy a home in Greater Boston’s overheated housing market, can thank St. Jude — patron Saint of Lost Causes — for delivering this long awaited headline to page one of the Boston Globe on his feast day: 

Suddenly, area’s housing market favors the buyers
Cooling of sales to crimp economy

PULL QUOTES:

The fall slowdown not only represents a sea for sellers, who for years have enjoyed multiple offers and higher prices, but also indicates the region’s bull housing market is at an end. Real estate agents say a long-predicted market correction appears underway as the gap between the price of housing and peoples’ incomes — now even wider than at peak of the 1980s housing boom — has become too great to sustain the recent pace of sales and appreciation.

Certainly, few expect an ’80s-style collapse, when home values plunged 25 percent or more.Today, the economy and lenders are far stronger, and mortgage rates, which topped 10 percent when the last boom went bust, are far lower — currently about 6 percent. In the 1980s, overbuilding, unsound lending practices, and intense speculation by investors, along with higher interest rates, sparked a real-estate crash.

Asking prices drop by nearly 15% in 16 suburban Boston towns

Price_reducedHomeowners in Greater Boston and elsewhere continue to expect "big real estate gains" despite a stunning revelation this week: "asking prices in 16 MetroWest towns have dropped by nearly 15 percent" since August, according to MLS statistics.  "All good things come to an end," economist and housing guru Karl Case told real estate reporter, Sue Brickman of the Weston Town Crier.  Commenting on "a spreading inventory problem" and "a sea change on the demand side which we have been expecting for a long time," Case predicted that "prices are going to fall back to a justifiable level, because people are running out of gas (interest)."  Noting that current price reductions will not show up in industry statistics for some time, Case was guarded — but cautious — in his assessment of the market:

"We’ll see some softness for a while, but I don’t see a collapse. But I say that not with a hell of a lot of conviction." 

Leading indicators: Do sales of St. Joseph statues signal a housing slide?

Stjosephstatue_2About a week before Alan Greenspan began talking about froth
in the nation’s housing market, David Lereah, the chief economist for
the National Association of Realtors surprised some of the industry
faithful at their mid-year meeting in May by cautioning that some "Local Housing Bubbles Could Burst in Next Couple of Years."  According to an Inman News article by that name, Lereah listed eight "indicators a market may be headed towards a bust":

1.  Home
sales falling,
2.  Price growth below historical average,
3.  More than a
6.5-month supply of housing,
4.  Properties taking longer to sell,
5.  Job loss
in the area,
6.  Rising mortgage rates,
7.  Negative net migration, and
8.  Rising
loan-to-value ratios.

Time to add a 9th indicator to the list:  sales of St. Joseph statues are soaring

"…does St. Joseph know something the rest of us don’t about an
impending pop in the real estate bubble?" an article in the New Jersey-based StarLedger.com asked on Friday, August 19th. 

Mortgage banks dispell housing bubble notion


Mortgage banks dispell housing bubble notion

http://www.dallasnews.com/sharedcontent/dws/bus/stories/072305dnbusmba.a0e653dc.html

Mr. Duncan said that the impetus for the paper was a “crescendo” in inquiries about the existence of a housing bubble. The MBA paper cited a Lexis Nexis search for the term “housing bubble” for July 2005 that yielded 650 articles.  According to Inman News, "The purpose of the 30-page analysis of housing and mortgage markets, Duncan
said, is to put the flood of housing market commentaries and analyses into
perspective, review the risks and discuss the systems in place to help mitigate
risk."

Though the landscape has changed in recent years, Mr. Duncan emphasized the paper’s conclusion that, “there are risks but they are far less dramatic than the hyperbole of recent months.”
   

“House price growth will slow and there could be a flattening or even a slight uptick in delinquencies and foreclosures in coming months and the U.S. economy could slow.”
   

A full 35 percent of Americans own their homes outright and an additional 51 percent hold fixed-rate mortgages. In all, Mr. Duncan said the paper estimated that a scant 7 percent of homeowners were exposed to interest rates sensitivity, which did not include data on home equity borrowing.
   

According to the National Association of Realtors, condo inventories shot up from a 3.5-month supply in June to a 5.3-month supply in July. Though inventories for single-family homes also rose for the month, the increase to a 4.6-month supply from June’s 4.3 months was far less dramatic.
   

“The appropriate stance,” the paper concluded, “is one of caution, not of panic.”
   

"There are risks, but they are far less dramatic than the hyperbole of
recent months," said Doug Duncan, chief economist for the Mortgage Bankers
Association. Duncan co-authored a report, "Housing and Mortgage Markets: An Analysis," released today.

Inman News say, "While the trade group is not predicting a housing-price crash, it does
predict a sharp decline in housing-price growth next year, with average appreciation
levels dropping to between 4 percent and 5 percent from this year’s double-digit
appreciation rates, Duncan said."

Inman:  But there are a number of factors that work to mitigate these risks, according
to the MBA analysis. For example, there is an alignment of incentives among
the borrower, lender and the investor, Duncan said. Each has a stake in the
borrower making mortgage payments and the alignment limits the extent of
problems caused by any potential downturn.

Inman:  Duncan said sharing of incentives is why the trade group suggests mortgage
borrowers see a lender before seeing a real estate agent. Agents have no
stake in loan delinquency once the house is purchased, he said.

 

Mapping comments from the HousingBubbleBlog

Has anyone given any thought to "mapping" the kinds of trends and location specific information readers of this blog contribute from around the country?  Comments posted here could protect home buyers from making a mistake that will cost them for years.  Skeptics, like those in the recent newspaper article in Boston and other markets who blame the market slowdown on the media, should check the locations, price declines, and duration of past price corrections on this experimental site:

http://www.realestatebubblemap.com

Your comments are welcome.  Better yet, create your own local bubble map and let others link to it; and if readers are in the housing market, attach comps to their offers.  Be sure to click on the Boston map to see homes selling for below their assessed value, some $100,000 or more below their original asking price.

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