Are hidden “seller incentives” masking true price decline?

Buyhome4cash_1
Side-by-side competition driven by the rising inventory of unsold homes across Massachusetts is creating a new kind of bidding war:  escalating financial incentives to help sell homes as soon as possible. 

Some time ago, the local MLS added a new field to document seller concessions at closing. However, entries are rare and as noted by one prominent critic,
"current house price indices are failing to pick up the full decline in prices
because they miss the various concessions (seller paid closing costs, buyer-side
realtor bonuses, and seller subsidized mortgages) that sellers often use
to move their houses."

That problem is compounded by the fact that median prices can be misleading, particularly when rival data sources reported
different median prices in Massachusetts in July 2006.
The Massachusetts Association of Realtors reported that single-family
prices declined 3.5% statewide, while The Warren Group calculated a
6.1% decrease.  Adjusted for inflation, year-over-year prices fell 7.8% using MAR’s stats and 10.2% using The Warren Group’s according to BostonBubble.com.

To help get behind the confusion, The Real Estate Cafe created a
real estate bubble map to document falling prices on a
property-by-property basis.  We’d also love to use the map to document
innovative sales incentives being offered by sellers, listings agents,
and developers in Boston and beyond.
Locally, one listing agent recently mailed fellow agents coupons for
$20,000 off a new development in Cambridge.  That seems modest by
comparison to the ambitious "Summer Full of Savings" being offered by one homebuilder across 17 developments in California.

Please let us know what’s happening in your market, either by posting your comment below or on our RealEstateBubbleMap.com.
We’re particularly interested in learning which sales incentives you
find most appealing, as well as seller concessions you’ve requested in
recent offers (like asking sellers to pay your closing costs).

Related Articles

Industry’s seller bias understates risk to homebuyers

Herald_082306_1Kudos to the Boston Herald for asking "Has the Mass. housing bubble burst?" on their front page this morning.

If homebuyers focus on median sales prices, they might reach the same conclusion the Massachusetts Massachusetts Association of Realtors (MAR) did three months ago when they told the public that a "New study finds no evidence of a “housing bubble” in metro Boston."

Afterall, according to MAR’s report on existing home sales during July 2006, median single-family home prices decreased just 3.5 percent from the previous year, despite declining sales during 17 of the past 18 months.  To their credit, MAR also disclosed:  (1) that is the largest annual price decline since March 1993; (2) median sales prices have declined for six consecutive months, and (3) that is the longest slump since housing prices fell 13 straight months from March 1992 to March 1993.

Housing price seasonality in Massachusetts

Maseasonality_bw1_1Some pictures are worth a thousand words, others are worth tens of
thousands in savings (or more than $100,000 in some communities in
Greater Boston.)

Click on the graph above for a closer look at seasonal variation in
median sales prices for single family homes across Massachusetts before
making "The Big Move" this Spring, or you could be making a "Big Mistake."

Note, this graph helps explain why median sales prices in Massachusetts are down 9.5 percent from their peak last summer.  Inflation-adjusted prices are down even further.  Will median housing prices
rebound this summer?  That depends, in part, on offers made by
overeager buyers in coming weeks.  Peak sales prices in June reflect
offers typically made in April and May.  What’s our advice?  Make sure
you’re making the "Right Move," and don’t mistake a marketing push for a market opportunity.  Asking prices will soften after the 4th of July, when it’s likely we’ll see a record number of listings get the "Big reMove," and savings opportunities increase for the balance of the year.

Boston housing market 2006: “Hard landing” or “return to normalcy”?

Three weeks after economist Nicholas Perna told the Boston Globe that "both early data and the anecdotes — are pointing more toward a hard rather than a soft landing" for the [Massachusetts] housing market, Perna repeated that assessment in the Boston Herald following news that single-family home sales fell 9.2 percent in November.  Need to confirm, but isn’t that the four month this year of near double-digit decreases compared to 2004?

"It sounds more and more like the housing adjustment is a harder landing in Massachusetts than elsewhere in the country,’ said economist Nicholas Perna. ‘I don’t think we are seeing anything like that in the country as a whole. My guess is that Massachusetts is among the most seriously affected."

Some real estate professionals dismissed the significance of falling sales, calling them a "return to normalcy."   What’s your take?  Your comments are welcome below, or on our readers’ "record your own podcast" line:  617-876-2117. 

Update: new listings posted on Cape Cod

UPDATE:

If you look beyond median prices to individual transactions, major price corrections are already happening.   The Real Estate Cafe has already mapped nearly 400 sales below assessed value across 27 of the most expensive cities & towns in Greater Boston.  In coming days, we’ll post another 200 sales to our real estate bubble map including 50 in Greater Boston and another 150 from Southeastern Massachusetts, primarily on Cape Cod.  If you see evidence that prices are falling, please post them to the real estate bubble map or create your own.  If you’re one of our clients, we’ll reward you for each property (see "Tipping Policy" for more detail.)

Globe follow-up II

As you can see from the early experiment below, we’ve been mapping
homes selling for below assessed value in Newton since November 2005:
http://tinyurl.com/qpbsh

When we noticed that the same pattern was playing out in more than 25
of the most expensive cities and towns in Greater Boston,  we expanded
the map beyond Newton:
http://www.platial.com/realestatecafe/map/6343

We also decided to work with a mapping platform that enables anyone to
post comments, add properties to an existing map, or create their own
map.  Check out this map of Cambridge, MA where the myth is that sales
prices never decline because of the built-in demand from Harvard and
MIT:
http://www.platial.com/westsidebubble

You don’t need to be a Harvard & MIT grad to recognize a falling
market, so I hope other bubble bloggers begin to create their own
bubble maps to aggregate their collective wisdom and document falling
housing prices in their local markets.  If you do, please link it to
http://www.realestatebubblemap.com

Our hope is that a national network of bubble maps would help inform
and protect homebuyers from overpaying in overvalued markets.  That
lofty goals translates into creating an open source platform that
enable anyone to pick and choice "user-posted comps" to support offers
they submit well below sellers’ asking prices.  If it can work in
Massachusetts, it could be a model for other bubble bloggers and buyers
around the country.

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