I was happy to come across this article. I love a postive outlook!
Monday, March 20, 2006
Economists on housing market: “no bubble bursting”
Two of the nation’s top economists said today that despite a cooling in the housing market, a strong economy and job market are expected to bolster the US and New England markets and prevent house prices from declining in coming months.
At the New England Realtors Conference in downtown Boston, Cathy Minehan, president of the Federal Reserve Bank of Boston, and David Lereah, chief economist for the National Association of Realtors, said that strong job growth in the US and New England will continue to fuel demand for housing.
New England “will have negative sales like the rest of the country” in 2006, “but prices will still go up,” Lereah said. “There’s no bubble bursting,” he said. “You can put air in the bubble, and it inflates and now the air is going out of the balloon — it is not bursting.”
Minehan agreed that New England’s housing market would not plunge as it did in the early 1990s, when house prices declined sharply.
For New England home prices, “the pace of appreciation here has been greater” than the rest of the nation, Minehan said. But “unlike the ’80s, residential construction has not boomed, and there has been little speculative building.”
“My sense is that Massachusetts and New England will experience some sustained cooling in real estate and some flattening of prices, but the trend is not likely to affect the region overall negatively, and likely not more than the nation as a whole.”
Despite the positive forecasts, both economists warned of some risks that exist in the housing market, including the potential for rising interest rates, due to high federal budget and international trade deficits, and a large percentage of interest-only and other trendy loan products that expose homeowners to more risk.
Lereah said US house prices, which surged 12 percent last year, will rise half as fast, or about 6 percent, this year. He did not provide a forecast for New England. (by Kimberly Blanton, Globe staff)
Replies
seen a number of houses on the market for a long time.
the house next to us was bought 14 months ago and today has a sale pending sighn on it. we're curious to see what its selling price will be, the asking price was 30K more this time than whartwas paid last year. last year it took 3 weeks to sell, this year about 6.
there is a house mile away that has been for sale for 6-12 months.
a spec house next town over has been for sale for more than a year (didn't know BossHog was from around here :) )
there have been forclusure notices on four house on my street in the past year.
bobl Volo, non valeo
Baloney detecter
Bob, a year someone lived in the place, spend 6 weeks on the market and gross profit of $30K. I'll take those odds anyday. With that scenario, I gotta believe the houses that aren't selling aren't priced right.
Glass is half full damn it -- do not confuse me with facts. ;-)
"A job well done is its own reward. Now would you prefer to make the final payment by cash, check or Master Card?"
"...a year someone lived in the place, spend 6 weeks on the market and gross profit of $30K. I'll take those odds anyday."
Depends on how much capital you have to tie up to get that return, doesn't it?Tipi, Tipi, Tipi!
http://www.asmallwoodworkingcompany.com
Also depends on what your closing costs and commissions are. If it's a $500k house, the $30k would be spent just paying the realtors, in which case the sellers lost money on the deal.
Bob
>>"Also depends on what your closing costs and commissions are. If it's a $500k house, the $30k would be spent just paying the realtors, in which case the sellers lost money on the deal."
True, and to be honest I didn't think it through (could try to backfill here -- nope, I didn't think it through).
I'm more looking at it as on the one hand, a house increased in price over the course of the year with no mentioned improvements, while houses around it sit unsold. From a gut feel point of view, in terms of odds of making something in that market by actually doing improvements, I'd still take those odds. Same gut feel says something's up with the houses around it that aren't selling. Maybe the market is getting soft there, but . . . the glass is half full. ;-)
For any specific buy decision, the gut feel would get me to look at an area, but no more. At that point, I'd have to look at the specifics of a particular buy and actually fill in the spreadsheets, get cold comfort from my realtor on what it would sell for, and on and on. I'm actually pretty conservative -- I have never factored future anticipated appreciation into a deal (other than what comes from actually improving it's value -- I'm not a speculator). Also a little reckless -- never really factor a major price decline in either. To be a little safe, I do make sure I've got a cushion of carrying costs tucked away for a rainy period, but on the reckless side, I also do assume rental income if the market tanks and a place just won't sell. Tricky balance, but so far so good.
I do pay attention to you guys as much as possible. ;-)
"A job well done is its own reward. Now would you prefer to make the final payment by cash, check or Master Card?"
Edited 3/21/2006 1:49 pm ET by philarenewal
>>"Depends on how much capital you have to tie up to get that return, doesn't it?"
Yup. But that's why I started with "lived in the place." Gotta live somewhere. Might as well make $$$ while doing it, no? Guess I assumed it wasn't a true investment and whoever lived there actually wanted to live there.
Only way I'd move out'a my house is in a pine box no matter what it might be worth someday (that's after I shoot myself 'cause the property taxes are skyrocketing ;-)
Anyway, glass is half full, glass is half full . . . . ;-)
Edit: Maybe getting overly flippant around lunchtime. After seeing your's I saw Bob's also and sat up a little straigter in my chair. My post to Bob responds to you as well. I do pay attention to you guys. http://forums.taunton.com/tp-breaktime/messages?msg=71317.17
"A job well done is its own reward. Now would you prefer to make the final payment by cash, check or Master Card?"
Edited 3/21/2006 2:47 pm ET by philarenewal
Edited 3/21/2006 2:49 pm ET by philarenewal
(that's after I shoot myself 'cause the property taxes are skyrocketing ;-)Isn't that the truth!!!!!!!!!!!!!!!!! my monthly energy bills total about $400 for home and vehicles, my property taxes now come to $500/mo.I'm in a very rural county I have no idea how you big city folks deal with it.
$500/mo in VA? I always thought taxes were low in VA? (I'm in central Joisey)
Yeah,
Taxes might be high in New Jersey, but at least Corzine hooked you up today
>>"I'm in a very rural county I have no idea how you big city folks deal with it.
It's easy. We just throw the next city councilman in line to the lions. Keeps our spirits up.
http://www.philly.com/mld/inquirer/14127389.htm (story about the latest conviction of city gov't elected official; they've been dropping like flies for quite some time now)
"A job well done is its own reward. Now would you prefer to make the final payment by cash, check or Master Card?"
It's easy. We just throw the next city councilman in line to the lions. Keeps our spirits up.
Ha ha! Trashing the local politicians (and the county government employees) here is such a popular sport that there's an entire website devoted to 'columnists' who do just that. With rates increasing and values increasing, our RE taxes have doubled in 3 years.
>>"With rates increasing and values increasing, our RE taxes have doubled in 3 years.
That's a crime -- same here. They're expected to more than double again unless the state legislature does something about it.
Thing is, in your city in the last three years, have the city's costs increased by double? Have the services it provides doubled? I just never get it. It's like we are servants of the government instead of the other way around. We all work hard to improve our properties, we're all nice people so other people want to live in our neighborhood, etc. Our reward is "thanks, now if you can't afford to pay your new tax bill, sell and get out, we'll quickly replace you with those who can pay." A crime.
"A job well done is its own reward. Now would you prefer to make the final payment by cash, check or Master Card?"
Philadelphia Politics,
Makes you long for Rizzo, doesn't it?
>>"Makes you long for Rizzo, doesn't it? "
Yeah the good old days. Now if we could somehow bring back Dilworth as mayor and get Rizzo and make him police commissioner . . . .
You in the area (or transplant out)?
"A job well done is its own reward. Now would you prefer to make the final payment by cash, check or Master Card?"
After broker fee I figure 10K net.watching to see the actual sell price.
bobl Volo, non valeo
Baloney detecter
Bob,
I think the point of the article is that while the market is in fact correcting itself, the proverbial sky isn't necessarily falling. A market correction is always going to leave behind a few casualties, but it's not the end of days for most of us. No doubt things are slowing down (I'm home at 10:00 on a Tuesday, aren't I?), but I still see a fairly healthy market. I'm cautiously optimistic, I guess you could say.
I know a lot of people that got caught in interest only ARMs and over extended themselves. I think that ARMs can be a very good tool when used for and at the appropriate times. We were in one for almost a year as it was the only way we could afford to carry two properties for a little while. It also free-ed up some income while we were doing work on our house. The thing with ARM's is, you gotta know going in that sooner or later you can afford to pay the piper. We've since refinanced into a 30 year fixed.
I'm seeing houses sit on the market as well. But I've also noticed that once they drop the prices some (not necessarily substantially) they are still selling. This tells me two things. 1. People are still shopping. 2. people are getting smarter about not overpaying for houses. The rising interest rates force people to shop a little bit harder for a solid deal as they look at monthly cash flow.
With savy buyers, comes tighter profit margins for builders. Also, not necessarily a bad thing. I believe it will help to weed out a lot of the weekend warrior types who decided in the last few years, that building spec was a nice get rich quick scheme. With some of these "builders" backing off it should help even out the flooded market and get things moving again. Don't get me wrong, I've made money off the fat these guys had to work with, but long term health of the market is more important in the long run. Ask me again how I feel as I near retirement!
Hey... it's just a framer's point of view. I liked the article and thought it was worth sharing. Don't let a little sunshine scare ya. ;)
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seen a number of houses on the market for a long time.
Same around here...central NJ. I figure a lot of buyers are "sitting on the fence" waiting for the bubble to burst.
Interest rates just dropped.....prices around here (even for houses that have been on the market through winter) are about 3 to 5 % higher than last fall.....go figure.
I have bought and sold houses in good and bad markets. Never lost money. Have had a few I didn't make what I wanted but never lost any. I never let forcasts govern the way I do business and it all seems to work out. DanT
Got some friends with a house in Westport they cannot sell, no matter what. On an off the market for over three years now. Price reductions to no avail. Right around the corner from Martha's Turkey Run place.
Same thing, not so long though, with someone else we know with a house a couple towns up north.
Real estate agent working with the Westport owners says there is a seven year inventory right now of existing homes for sale. Computation is done by dividing the number of current listings by number of closings last twelve months.
Just my little anecdotal riffs. Others' mileage may vary. Location, location, location.
>At the New England Realtors Conference in downtown Boston, Cathy Minehan, president of the Federal Reserve Bank of Boston, and David Lereah, chief economist for the National Association of Realtors
Hard to tell if a bubble is bursting, simmering, or leaking, but those sources have tons of $ to gain by promoting a rosey outlook.
splat
So do I. ;)View Image
Fair enough.
Warning to you, while you're in Prov. for JLC I suggest not buying any luxury condo's for speculation. Within a 20 min walk from JLC there are easily 200 luxury condo's going in that will come online in the next 2 years. Probably won't be really ready until interest rates flirt with double digits though.
splat
Thanks for the warning. I catch enough trouble coming home new saws, lasers, and nailers... never mind a condo in RI. I think I'm safe.
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Edited 3/21/2006 4:54 pm ET by dieselpig
Just saw this about ten minutes ago. http://news.yahoo.com/s/csm/20060321/ts_csm/amaxedout
A good friend of mine workss in banking. My father works for a fairly large construction firm that builds highrise and assisted living stuff. My brother works for one of the oldest investment houses around.
All three have very different outlooks on the future of housing and the dreade "Bubble"
I think all three are just guessing
Kinnda like whoever wrote these two pieces.
The whole economic scenario is quite interesting. We commissioned a well-known economist to do a study for us for our regional market and things look good.
But then again, it is Florida and its always been a good market.
Mike
http://www.oakrb.com
Don't jinx yourself.
We left Florida in the mid 80's after the Texas economy collapsed.
We were getting a little over $1.20 a ft to frame on block shells for Pulte and a little more for Suarez.
Once the Texans and Migrant framers arrived in hordes, and the local economy took a dive all at once, it was back to .55 a ft and fighting to get one or two houses a week instead of five.
In 84 we were working 80 hours a week and by the fall of 85 about 20.
Rising property taxes in urban areas is a major factor. Housing prices rose at astounding rates over the past couple few years in a perfect storm of record low interest rates, strong economy (in general), return to the cities demographics, and some speculative bubbling.
One worry is that the eye of that same perfect storm has passed and we're headed for record property tax increases due to the inflated prices, rising interests rates which put even more pressure on adjustable mortgage holders, soft market so people can't get out from under the bite they now can't chew, and any falter in the economy that would pull the pin on all this.
I blame it all on the property taxes. ;-) Our city planners seem content to allow rich folks to replace the middle class, rather than growing population and employment opportunities to expand the tax base. It's been the battle ground since the country's major banks left here to set up in Manhattan and Boston so long ago to avoid stupid parochial politics and tax policy . . . .
"A job well done is its own reward. Now would you prefer to make the final payment by cash, check or Master Card?"
Edited 3/22/2006 9:15 am ET by philarenewal
I'm dying to see what happens to the market when the 77 million baby boomers start retiring and want to downsize.
Now that's a market to tap.
A lot of folks already are tapping that market. That's one of the great appeals of the "Not So Big House", that not only are all these boomers retiring, but they lived through a time of tremendous economic growth (mid 1940s - present) and have come to expect a very high standard of living.
Couple that with the fact we are all living longer and the lack of wheel chair friendly homes that are way too big for the average elderly couple to take care of and it's easy to see the potential for carefully thought out, small houses.
Seems like I read something about it in every Sunday paper.Tipi, Tipi, Tipi!
http://www.asmallwoodworkingcompany.com
http://www.census.gov/population/censusdata/urpop0090.txt
The baby boom hasn't ever really ended. Speak the truth, or make your peace some other way.
That should be a continuing market for generations to come then.Tipi, Tipi, Tipi!
http://www.asmallwoodworkingcompany.com
I hope so. Speak the truth, or make your peace some other way.
What I've been seing in the Boston market is anything overpriced or that's just crap is on market for a long time. Yes many are trying to sell off their crap for a premium right now. Nice homes in nice neighborhoods going for a fair price are sold very quickly. I have not seen a rise in homes prices in my town for atleast a year if not more.
For example this knuckle head bought a small 3 bedroom cape fairly close to me that needed work for $524K (I couldn't believe that he paid this much for it in the first place) thinking he'll renovate then flip. Re-did the kitchen, sanded all the floors & painted all rooms then threw it on the market for $649. Over a year later and several price reductions he's tyring to get $569 for a house in a $400-$450 neighborhood.
We're starting to see a bunch of that here but at least so far, they're not really downsizing. Retiring suburbanites move to the city for the arts & culture & whatever, but still expect a garage, large home, peace and quiet, etc. Large homes with garages in quiet neighborhoods are pushing into 7 figure prices. Too many $$$ chasing too little product.
The sad part is that the folks who lived in those neighborhoods all along and who are the ones who made them nice, quiet neighborhoods are getting pushed out from the property taxes. . . .
"A job well done is its own reward. Now would you prefer to make the final payment by cash, check or Master Card?"
Philarenewal wrote:The sad part is that the folks who lived in those neighborhoods all along and who are the ones who made them nice, quiet neighborhoods are getting pushed out from the property taxes. . . .
That's why we had Proposition 13 out here in California. It limits the rate of increase in property taxes to a few percent per year. The new owners get the step up in basis when property sells. The upside is that it keeps the rapacious politicians in check a little bit and keeps granny from being pushed out because of low cash flow.
The downside is that it creates two classes of citizens; those that bought recently and are taxed very high, and those that bought a long time ago and have low taxes. Also corporations do very well if they don't sell their property.
Overall, I consider it a positive here.
Erich
>>Proposition 13 out here in California
How can I get that here? If the increases would keep pace with inflation, I'd be happy. Costs of running things goes up with inflation so I'll pay that. When the increases exceed inflation (by like 30 times), I lose the logic of it. We work for the gov't. instead of the other way around.
Who was the lobbying firm that got that bit of magic going? Must have been good at what they do.
"Let's get crack-a-lackin" --- Adam Carolla
Edited 4/9/2006 12:31 am ET by philarenewal
In Ma. we have somethiong called Prop 2 1/2. RE tax limited to 2 1/2 % of evaluated propeerty values.doesn't stop taxes from risingand created a whole new set of fees.
bobl Volo, non valeo
Baloney detecter
One thing that caught my eye was the following
"At the New England Realtors Conference in downtown Boston, Cathy Minehan, president of the Federal Reserve Bank of Boston, and David Lereah, chief economist for the National Association of Realtors, said that strong job growth in the US and New England will continue to fuel demand for housing"
The economy and job growth has been very strong but with a few exceptions, Michigan has lagged far behind national numbers, as well as PA and OH I believe. I know that Massachusetts was there have been positive job growth numbers, to describe them as strong is disingenuous. They cover themselves a bit by saying New England, but I imagine the article ran in the Boston Globe so the reporter is not serving his/her readers. One additional problem with Massachusetts that is affecting your slow down and is something of great concern to many except MA politicians, is that Massachusetts is losing population. I believe from 2000 to 2005 MA was the only state to lose population even when you consider the illegal and legal immigration from foreign countries. A few lost populations of American's, CA, but increased pop. slightly when you add in the illegal and legal immigrants.
Going forward, as baby boomers retire, you will see many cash in their huge financial gains on real estate and move south to flee the cold winters, high taxes and across the board high living expenses versus down south. There was an article last week in the Globe or Boston Herald that spoke about the population flight, especially from Boston. I think they said that last year alone Boston lost 27 people per day on average.
Another local problem for MA is the lack of large corporations. Gillette is now HQ'd in Cincinnati after the Proctor and Gamble purchase, Digital Computer is long gone, etc. Other areas have a much better business foundation than this area. This area is holding on to the small to mid sized tech companies on 495 and the large financial companies and insurance companies in Boston.
Their are challenges at hand right now, and I have no faith the local Pol's will act and considering most are amazingly stupid and corrupt.
All that being said, I think the market will be soft for a few years with buyers having lots of options. Under $1 million will be more of a normal market but about $1 million I think the market will be very tough, that is the range many of the spec houses were built for. The better smaller spec builders in my area that have been in business for 15/20 years really stopped buying land about 1 to 1 1/2 years ago. Recently they have done only a few single house projects, and those were really just to keep their GC busy. Those few houses have sat on the market for a long time and they needed to reduce their prices a lot.
Wow... that was a low one Jon.
In Central MA, this is what I'm seeing, housing wise. Chapter 40b, where a developer can ignore local zoning laws by dedicating part of a project as "affordable housing". The town next to me has 1200 units on the planning boards, Town South of me has 600 units planned.
Condo's are still the craze, with old mills, barns, even 3 decker houses being "condo-ized". Some 3 deckers in Worcester are asking $300k - $400k per floor.
Where I live, the property tax rate went down, assessments went way up. I'm seeing 150 year old homes being assessed at $700k, regardless of condition, and placed in the same class as new construction. I know of one couple who had their 1890 house repainted, and the value went up by $125k in one year. And the local Home Depot's property value keeps right on dropping. And most of the remaining industrial land has been rezoned for retail/commercial use.
The real estate rush is pushing westward, with ads saying "Only a 2 hour commute to Boston".
"two hour commute to Boston"- what's that, about 20 miles?
Doug