Three phases of a real estate bubble

admin December 15, 2005

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“Comparing actual selling prices though, the market has not dropped. For example the last property sold for $300,000 and this one also sells for $300,000 (but was originally on the market for $360,000). In actual fact there is no crash at all. The public make a mistake when they read price reductions in advertisements to mean that actually selling prices are also reducing.”

You have only described Phase I of a crash.

In Phase II, the speculation premium disappears from buyers’ willingness-to-pay, as they become aware that those anticipated 20% YOY gains you refer to were a mirage. At that point, the real air goes out of the prices, and valuations adjust downwards from where they were at the height of the boom when anticipation of untold future riches artificially inflated valuations.

In Phase III, the drop in price from Phase II comes to light, and the downward movement in prices gets taken into consideration, setting off a tail-chasing correction of valuations back to fundamental levels or lower.

Stephen Stohs
Economist

Categories: Uncategorized

Asking prices in Boston falling faster than anticipated?

A post yesterday on Business Week’s real estate blog entitled "Home price danger zones" once again cited Boston as the nation’s most vulnerable housing market, according to PMI Group’s quarterly survey of major housing markets. In the past, the good news for sellers has been that "House prices are sticky, so moving to another phase in the real estate cycle can be a slow process," as the BusinessWeek blog reports. However, that conventional wisdom comes from real estate cycles before the Internet era.

Will housing markets correct more quickly, when millions of consumers can access current market trends instantly online? No one knows yet, but there are signs that asking prices in Boston are falling faster than anticipated. Asking prices in 16 suburban towns dropped nearly 15% in recent months according to MLS stats cited in the Weston Town Crier, and a Boston real estate agent who blogs has began speculating about what would happen if prices in the city drop by 10%.

The fact that home buying plans have plunged nationwide to their lowest point in a decade and locally unsold listings are expiring at a record pace could make home prices fall more quickly, too. What’s your take? You can post your comment here, or call our reader line at 617-876-2117 to record a one to three minute sound bite that we may use as a podcast episode in our Real Estate Bubble Time Capsule.

admin October 20, 2005

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Converting expired listings into win-win opportunity for DIY homebuyers & FSBOs

It’s that time of year again. Thousands of real estate listing contracts are ending or “expiring” across Massachusetts. Using 9/26/11 as a starting point, we…

admin December 20, 2011

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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.

admin December 3, 2005

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Market snapshot confirms seasonal price reductions even in desirable towns

Yesterday, Boston.com rightly blogged, Holiday season a gift for frustrated buyers. Since there were so few comments and fewer facts, here’s a snapshot of what happened…

Bill Wendel December 3, 2013

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

Homeowners 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: