Will luxury “short sales” drive housing prices down across MA?

With hyperbole-filled housing headlines “soaring” across the internet in Boston, it’s important to take a sobering look at a “sleeper” trend that has the potential to pull down housing prices across Massachusetts in 2010 and beyond.

Last Friday, Bloomberg published a chilling headline (no pun intended) that has yet to attract a comment on Boston.com:

Luxury-Home Owners in U.S. Use ‘Short Sales’ as Defaults Rise

Hard to believe that “Payments on about 12 percent of mortgages exceeding $1 million were 90 days or more overdue in September,” harder still to believe that nearly double the delinquency rate on loans under $250,000.  More troubling, however, is that the delinquency rate over $1M has almost tripled during the past year.

What implications does that have for the housing market in Massachusetts?  Over the past nine weeks (10/18/09-12/21/09), just 63 of the 6068 MLS listings priced over $729,750 (the jumbo loan limit for the nation’s highest-priced housing markets), were short sales or lender owned listings.  That’s just one percent of all “jumbo” listings statewide.  What will happen to housing prices when more distressed high-end homes come into the market?  Instead of one in 100, what if one in ten jumbo listings is a short sale or lender owned property in 2010?  Bloomberg says, “Luxury home prices probably will drop another 5 percent before reaching a bottom in September 2010, according to Sam Khater, senior economist at First American.”

But the Real Estate Cafe‘s research suggests price declines could be much worse.  If the past nine weeks are any indication, we already know is that 64% of luxury short sales and lender-owned properties are priced UNDER their assessed value, some as the graph below shows, as much as 40% below the assessed value (see graph above).  What’s going to happen to your property value when the paper “Millionaire Next Door,” is no longer a millionaire and his home is on the market at a distressed price? (Bloomberg says, “The number of U.S. households with a net worth of more than $1 million, not counting primary residences, fell to a five-year low of 6.7 million last year from a record 9.2 million in 2007, according to Spectrem Group, a Chicago-based consulting firm.”)

So what if $600,000 becomes the new million dollar listing?  What impact would a softening of high-end housing prices have on less expensive homes, particularly with interest rates increasing and tax credits expiring early in 2010?  We’ve already created another graph showing sales prices of luxury short sales and lender-owned properties during the past nine weeks, and will make them available to potential clients.

Related Articles

Need your prediction: How far will rising cost of jumbo loans drive prices down?

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If you are a home buyer or seller reluctant to drop your asking price, MarketPlace.org’s segment tonight on jumbo loans is required listening:  "Jumbo loans feel subprime weight."

During the past several weeks, The Real Estate Cafe has helped buyer clients in Greater Boston prepare offers on luxury condos and a single family homes in the jumbo price range.  Thus far, sellers with broker listed properties have been reluctant to drop their prices, while FSBOs are ready to deal.  Maybe it’s too early for the trend documented below to show up in broker "comps" (ie.  recent sales):

"…more than 10 percent of his deals have fallen through in
the last few weeks — up from less than 1 percent. He says many people
just can’t get the loans they need. The same thing is happening in New
York, Boston and San Jose."

Will the rising cost of jumbo loans drive housing prices down in Boston and beyond, or as one economist fears, have a broader "jumbo impact on the U.S. economy."  What’s your prediction?  You can follow what real estate agents and others are saying on HomeThinking, what the public is predicting on My-Currency, and what the pros are modeling on Wall Street.  You can also leave a comment below, or add the location of homes selling below their assessed value value on our Boston Bubble map or RealEstateBubbleMap wiki. 

Before you make your prediction, take The Real Estate Cafe’s analysis of seasonality in the past into consideration:

According to [our] analysis of listing data between 1996 and 2002, one
in five Massachusetts properties that went under agreement between
Thanksgiving and New Year’s Day sold for at least 10 percent below the
original asking price.

Cross-posted on The Real Estate Cafe’s new, experimental social networking site.

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. 

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.

 

Homes selling for below assessed value in Greater Boston

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During the past three months, March through May 2006, another trend has emerged signaling the end of the housing boom in Greater Boston:  nearly one in four single family homes is selling for below assessed value, according to an analysis of sales in 27 of the most expensive cities & towns in Greater Boston conducted by The Real Estate Cafe. 

During the three month period, 921 single family homes sold across the 27 towns, including 216 sales below assessed value (see related map) identified in listing data from MLSPin.com.  According to an interview conducted with Lawrence Yun, senior economist for the National Association of Realtors earlier this year, "There’s no solid data, but it’s pretty much well known that the government assessment is nearly always below the market value." 

Preliminary data for May 2006, suggests that the number of homes selling below assessed value is rising, even though the percentage may be falling slightly.  During March 2006, 71 of the 275 single family homes in the surveyed towns sold for below assessed value.  That number fell to 61 in April when 257 homes sold across the 27 towns.  However, preliminary sales information from May 2006, show that 84 of 389 homes sold for below assessed value — an increase of 23 sales or 38% over the previous month.

More important, the year-over-year change raises concerns.  During May 2005, only 23 of the 342 single family homes sales in the top 27 cities and towns surveyed sold for under their assessed value.  A year later, that percent tripled, rising from 7% to 22%; and the number of homes selling below assessed value nearly quadrupled, rising from 23 to 84 sales.

Opinions vary about whether the rise in homes selling for below assessed value signal a loss in housing value, distressed sellers, or town assessments which have overshot a changing housing market.  In coming days, weeks, and months, The Real Estate Cafe will take a closer look
at those questions, and discuss which cities and towns are most impacted by this
new trend, which towns are improving and which are getting worse.  We
invite readers elsewhere to let us know if homes are selling for below
their tax assessment in your communities, too, in Massachusetts and
beyond.

MIT Professor: Housing prices could decline another 20%

Savings of $100,000 or more on individual home purchases were relatively common across the top 25 most expensive housing markets in Greater Boston in 2006, and according to one MIT professor, savings are likely to continue in 2007.  Professor William C. Wheaton predicts housing prices could decline another 20 percent in Greater Boston and other markets over the next two to three years.  Does that mean that homebuyers in the most expensive communities will see even more price reductions in each of these categories in 2007?

PARTIAL MAP of homes selling for more than $100,000 below their original asking price: (see technical note below)

As sales prices fall, well-informed sellers are could set more realistic prices so the gaps between the original asking price and final sales prices may not be as wide as those recorded in 2006.  We’ll continue to map the location of six figure savings, and invite you to do the same on The Real Estate Cafe’s award-winning interactive bubble map.  We’re so convinced that our clients will save money, we’re willing to base part of our compensation on it.  Contact us at 617-661-4046 or RECafe [at] Mac [dot] com for information on our experimental NEW fees and rebates options.

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