Buyer’s Choice Realty blog

Kathleen M. Howley wrote an interesting article recently. Check it out on Bloomberg.com. Howley’s thesis, built in large part upon interviews with Nobel laureate economist Joseph Stiglitz and co-creator of the widely used Case-Shiller housing index Robert Shiller, submits that speculators are largely to blame for the current housing recession and these same flippers/professional investors will keep prices down for some time to come.

How did this happen? Flippers bought more than they could afford thanks to no-documentation loans and other risky mortgage products during the housing market bubble in the late 1990s and early 2000s. When many of these loans ultimately went into default and the homes were foreclosed on, the bubble burst. This has been happening for four years now, and prices are still rapidly dropping.

These same speculators have been buying up foreclosures at auction and directly from lenders, which has prevented the housing market from collapsing completely, but Professor Stiglitz contends that speculators may cause a double housing recession. He said, “We’re creating a shadow inventory of homes that will be right back on the market as soon as the economy and the housing market begin to improve.”

The problem is huge, and banks (who own at least $11.5 billion of homes, according to the FDIC) also continue to contribute to it. How do you feel about banks, Professor Stiglitz? “…the same banks that created the problems by mismanaging their risk are mismanaging the disposal of their assets.”

There is no easy solution to this murky issue, but states will soon receive money allocated from the Housing and Economic Recovery Act of 2008 to purchase & renovate foreclosed homes, then sell them to families who intend to occupy the homes. States have 18 months to use their money or they will lose it. Hopefully this program will be run well by states and community groups so that potential buyers, mostly low-income, can occupy their own home, which will improve communities and settle the housing market. I have seen no indication that this money has been sent to states yet, but it is likely to be soon. Florida, Nevada, California, and Michigan, those most widely affected by foreclosure, need to act quickly and rationally.

What’s your view? We would love to hear from you. Call 800.25.BUYER (ask for John) or email me.

The National Association of Realtors® reported today that their forward-looking statistic, “Pending Home Sales Index“, based on contracts signed on previously owned homes, is down nationwide. With the economy going down the drain, huge job losses in many sectors, and consumer confidence very low, this number is no surprise.

Here in the Northeast, the numbers are the worst. The index dropped 7.2 percent to 63.2 in November and is 14.6 percent below a year ago.

Is there light at the end of the tunnel? Perhaps. The NAR’s “housing affordability index”, a complicated relationship between prices, mortgage rates, and family income, is approaching record highs not seen since 1972. Housing is actually becoming affordable again.

Real estate prices in Massachusetts show few, if any, signs of increasing for the moment. That could change by the end of this year if soon-to-be President Obama and his team roll out an effective stimulus package that focuses on housing. Financing a home purchase is as cheap as it was in the 1950s & early 60s thanks to the Federal Reserve, but if foreclosure numbers do not decrease soon, prices will continue to fall.

Is now the right time to purchase real estate in Massachusetts? For a free consultation to discuss your particular situation and goals (and to answer any and all questions you may have about the home buying process), call me at 800.25.BUYER (ask for John) or email me.

A needed step appears to be taking place in the Massachusetts housing market. The Massachusetts Association of Realtors® reported September 2008 market data recently, and the housing correction continues.

Feel free to read all about it over at Bay State Realtor News. Here is an excerpt:

“The inventory of residential properties on the market as of September 30, 2008 decreased 13.6 percent compared to the same time last year (from 53,957 listings in 2007 to 46,598 listings in 2008).  At the current sales pace, this represents approximately 10.2 months of supply, a decrease from 12.0 months of supply in September 2007.  On a month-to-month basis, the average months of supply is up from 8.1 months in August 2008.  It is considered a balanced market when there are between 7.5 and 8.5 months of supply.”

What have we learned? Inventory must come down in order to have a normal housing market. Unfortunately, prices do not continually drop in a ‘normal’ market, so we are not quite there yet. Prices are down for single family homes and condominiums across the state over the past year (multiple years for many towns across the Commonwealth). Once prices start to stabilize, we should be nearing the other side of the current economic downturn.

If you plan to buy real estate in MA, you should consider doing it before the end of 2009. Your property’s value may decrease in the short-term (6 to 18 months) after you purchase, but if you stay in your home for at least five years, odds are high that you’ll make a buck or three upon the transference of your deed.

The folks at Harvard have just released their latest housing study: SON (State of the Nation’s Housing) 2008. If you would rather check out a quick overview, check out their fact sheet.

In case you were wondering, yes, we have problems all across the country. Since this is a “current assessment” of the housing market, it can be viewed not as a media report but as scientific data. And yes, it’s discouraging.

Ready for some highlights lowlights? These all come directly from the fact sheet that you can read by clicking the link above.

• The months’ supply of unsold new single-family homes rose to more than 11 months in late 2007 and early 2008—a level previously not seen since the late 1970s—before dropping back slightly. The months’ supply of existing single-family homes for sale rocketed to 10.7 months by April 2008.

• By the end of 2007, the nation had 232,000 fewer construction jobs than a year earlier, dragging down employment growth in many states with previously booming housing markets such as Florida (74,000 construction jobs lost vs. 52,000 other jobs added) and Arizona (25,000 construction jobs lost vs. 23,000 other jobs added).

• The number of homes in foreclosure proceedings nearly doubled to almost one million by the end of 2007, while the number entering foreclosure topped 400,000 in the fourth quarter alone.

• In 2006, the number of severely-burdened households—paying more than half their income for housing— surged by almost four million to 17.7 million households.

I don’t think much more needs to be said about this study at this point. It is an interesting read, especially if you are having a great day and don’t like feeling so positive all the time.

I recently attended a breakfast featuring Lawrence Yun, the chief economist for the National Association of Realtors, as keynote speaker. Dr. Yun recently received the honor of being named to the USA Today’s top 10 economic forecasters (NAR’s press release). As the release states, “The National Association of Realtors® Chief Economist Lawrence Yun has been named among the top 10 economic forecasters by USA Today. Yun is ranked fifth on the list and is responsible for NAR’s real estate statistics and economic forecasting. The annual list recognizes accuracy in forecasting.“

Yun spoke about the state of the current market and backed up his forecasts for the near term with statistical charts and graphs which were very helpful. He believes there will be a modest increase in home sales in the second half of 2008, but because of negative buyer psychology right now (i.e. prices are going down, have been going down, and might continue to keep going down, so why buy now?) the gains in home sales may not be very big. Yun essentially believes that the market is bottoming out right now and should stabilize by the end of this year and start gaining ground again in 2009, though not very rapidly.

It is interesting to note that prices fell nationally 1.5% in 2007. The NAR started keeping market statistics in 1967 and this had not happened in their entire time compiling this data. Dr. Yun believes, as do many others, that this is the first time prices have fallen year-over-year since the great depression in the late 1920s and early 1930s. I must caution you that we are nowhere near entering such a time this time around. The unemployment rate has risen, but nowhere near as drastically as back then. Inflation is steady. Many areas around the country are creating jobs, while the public has experienced the greatest amount of job loss in the midwest due to the struggling auto business and manufacturing/industrial decline in that area.

Yesterday, the Massachusetts Association of Realtors, based in Waltham, released housing data for July 2007. Here are the numbers:

Detached Single-family Home Sales and Median Selling Prices