Buyer’s Choice Realty blog

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.

Hank Paulson’s hedge fund (HPHF) has struck again. They are taking a bunch of bad debt off the hands of the U.S.’ largest financial firms. No, they’re not banks any longer, simply financial firms. Banks are not having troubles like these multinational companies are.

From my understanding, HPHF will buy MBS (mortgage-backed securities) for less than 50 cents on the dollar, sit on them for a year +, and then resell them. Hundreds of billions of dollars will be spent to do this. Luckily, HPHF has an effectively unlimited supply of funds since we are all investors, can afford to hold terrible investments for multiple years, and they do not have to provide any returns to shareholders. Some of these MBS will be bought for 20-30% of their original value. These would be many of the mortgages that originated from 2005-2007. You know the ones, where there is an exhorbitantly high default rate? Yeah, those.

In any event, this plan has just been formulated, and many of the details are still in the minds of HPHF bigwigs. Updates will be a-plenty over the next week, and you can be sure you will receive my next HPHF newsletter.

Have you heard about Fannie Mae and Freddie Mac? Most likely you have, but in case you haven’t, here’s a quick recap…

These two government sponsored enterprises that own, sell, insure, and generally slice-and-dice our mortgages were helped out by the U.S. government almost one week ago.

Helped out? Well, a couple hundred billion of our tax dollars may potentially have to go to work for them. Fannie and Freddie’s accounting methods combined with the lack of public knowledge regarding their current fiscal situation is a detailed subject that deserves its own post. Some see this as a positive sign. Mortgage rates are at their lowest levels in months, the government wants us to think that confidence should be restored in the housing market and that home prices should stabilize soon. Basically, this step is seen as a bottom in home prices, at least during this cycle.

Others see this as a ridiculous maneuver that defies the logic of our free market economy. They feel that our government is one step away from becoming socialists or, more drastically, communists.

The upshot of this entire deal? Our Treasury Department and many others are protecting a large part of our economy, and Fannie and Freddie, at least in their current forms, will cease to exist in a short while. They have moved to conservatorship status, and are now under control of the Federal Housing Finance Agency (FHFA). The CEOs from both companies have been dismissed, and the FHFA has installed new ones - both new executives have extensive background and track records of success in management at large financial entities TIAA-CREF and US Bancorp.

On to the meat of this post. Many have said, written, etc., that these companies were, and are, too big to fail. It’s become a bit of a buzzword recently, starting with the Bear Stearns situation.

I thought I would ask myself the same question. Am I too big to fail? To save you from any more consternation, you should know that I am not, unfortunately, too big to fail.

• The assets that determine my current underlying value, according to GAAP (generally accepted accounting principles), are less than $100,000. No, it’s none of your business how much less.  Fannie and Freddie? Billion$, trillion$. No one knows exactly, as their assets are never static due to foreclosures, whereas mine are static unless I’m driving my car or using my golf clubs.
• I do not sell things that I own to foreign countries’ central banks, nor to huge multinational institutional investors. There was one time where someone from Nigeria tried to get me to ship them the hip video game system I had listed on Ebay, after which they would send me payment via money transfer, but I digress. Fannie and Freddie? Fannie just completed, within the past few days, another debt offering. Freddie is finding it harder to sell their debt at the moment, but they succeeded in the past.
• My continued success is not vital to the United States’ economy as a whole. I might like to think so, but it just ain’t that important if I go bankrupt or not. Fannie and Freddie? They win this one as well.
• There are many more reasons, but this post is too long already. If you made it to the end, thanks for your time. As your reward, look at that meat again. Mmmmm.

As a post script, if you are too big to fail, by all means let me know your reasons why.

The following numbers come from the Massachusetts Association of REALTORS® (MAR). Surprise surprise, prices are down as are the number of units sold. It is interesting to note that condo prices statewide dropped a very small amount on average. The towns north of Boston were hit a little harder, with both single-family and condo prices dropping 12.1% versus a year ago. As always, real estate is local, and some towns are very insulated from the effects of these price drops. That said, it is quite a buyer’s market right now, with plenty of inventory and lower prices. When this whole thing turns around, it will turn sharply, so if you are thinking about buying, don’t get caught on the other side when prices increase dramatically. It looks like next year will be the low point, so save that money and give me a call when you’re ready to buy!

MA Detached Single-family Home Sales and Median Selling Prices

July 2007     July 2008     % Change

4,363           3,928          -10.0%

365,775       326,500        -10.7%

MA Condominium Sales and Median Selling Prices

July 2007     July 2008     % Change

1,933           1,804           -6.7%

293,500        284,000         -2.9 %

North Shore Detached Single-family Homes Sales and Median Selling Prices

July 2007     July 2008     % Change

373              328             -12.0%

385,000       338,075          -12.1%

North Shore Condominium Sales and Median Selling Prices

July 2007     July 2008     % Change

158                 156             -1.2%

262,500        230,625         -12.1 %

President Bush signed into law today the oft-debated housing bill that recently passed through the House of Representatives on July 23 (vote was 272-152) and the Senate on July 26 (vote was 72-13). Many were pessimistic about the possibility this bill would make it through both sides of Congress - specifically the Senate, where most Republicans threatened to vote against it, but Bush changed his stance and decided not to veto the bill.

There are many implications for the housing market as a result of this bill being signed into law, and many are calling it the most important piece of legislation for our country in a generation. This remains to be seen, but many changes will be happening over the next few days and weeks. For more specifics, you can do a web search of the title of this post, or you can read the final version of the bill here.

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.