Monday night, WBZ-AM radio talk show host Paul Sullivan tossed incoming MAR president Dave Wluka some easy questions on the subject. When Sullivan opened by asking whether someone buying a home now might be in danger of buying at the height of the market, Wluka responded "no" and tried to justify his opinion by talking about supply and demand as well as constraints on new housing development.
For the balance of the hour, Sullivan missed the opportunity to probe deeper and challenge Wluka for some worst case scenarios regarding the real estate bubble, including the likelihood of foreclosures. (Sullivan ought to know something about foreclosures: he’s from Lowell, Massachusetts, one of the communities hit hardest by foreclosures in the last real estate recession.)
In contrast, Business Week and the New York Times aren’t ducking the subject of foreclosures or other worse case scenarios. Business Week’s story on the high number of highly-leveraged homebuyers who may be in danger of foreclosure is the first time I’ve seen Coldwell Banker’s CEO tell buyers to "look at the worst case scenario." Robert Shiller’s predictions in the Times are the worst I’ve seen, period. They should be required reading for homebuyers worried about falling prices. Can you believe that graph?
As downpayments shrink sharply, highly leveraged homebuyers may be in for a fall
More and more homebuyers are discovering that in a bull market,
acquiring assets with other people’s money is the path to riches.
They’re borrowing a rising percentage of their purchase prices,
contributing to the housing boom. The danger is that if prices begin to
fall, people who have stretched to buy houses with 100% financing will
be under water on their mortgages and at risk of default if they have
to sell. "I always tell people, look at the worst scenario," says James
R. Gillespie, chief executive of Coldwell Banker Real Estate Corp. But
many buyers ignore the warning.
Buyers ignore Robert Shiller stunning warning in a New York Times article this weekend, and the accompanying chart, at their own risk. Shiller "predicts that prices could fall 40 percent in inflation-adjusted terms
over the next generation and that the end of the bubble will probably
cause a recession at some point." Instead of pressing Waluka for his response to that or any
worst case scenario, Sullivan let time run out and Wluka told listeners
that the "The [Massachusetts] market remains quite hot…"
Within 36 hours, his rosy comments were refuted by radio and newspaper stories, including the Boston Globe’s lead story on page one (see photo above),
which quoted statistics from his own organization documenting the fact
that sales of existing single family homes dropped for the third month
out of past four in Massachusetts. There are other signs the market is
slowing in Massachusetts including a record number of expired listings
this summer (watch for upcoming post and graph).
Wluka is an intelligent spokesperson for the Mass. Association of Realtors
(MAR) and a credible leader for the tough times ahead. He will serve
MAR well but he would serve the public better with some more straight
talk. Perhaps Barry Nystedt, the President of the Mass. Association of Buyers agents, will do that Thursday at 12:30pm when he appears on New England Cable News with Kim Blanton, the author of the Globe’s lead story today.
Instead of glossing over the serious questions raised by the housing
bubble debate (with comments reminiscent of an op-ed this week in the
New York Times entitled "Bubble? What Bubble?),
isn’t it reasonable to ask industry leaders for best case and
worst case scenarios so homebuyers and sellers can assess the risks posed
by the changing market and protect themselves from the real estate
Regardless of what industry leaders say or what local and national talk show hosts ask, consumers are clearly talking about the real estate bubble. The Globe’s story entitled, "Home sales slip again, condos surge: Data suggest local prices may be cooling" was the most emailed story of the day by a wide margin — more than the next six leading stories put together.