Market Report ::  March 2008

“Housing Prices Fall for 4^th Month,” “Wholesale prices jump up 1%,” “Chilling spring home sales,” “Oil futures set records over $100 per barrel” and “Fed ready to cut rates,” are just a few of the headlines that have been used by the media to describe the economy and residential real estate market.

 

What an onslaught and it is only the beginning of March!  Even the dreaded “stagflation” is being talked about where the economy will just sit smoldering in economic limbo.  Should we all just hunker down, bar the door and hopefully wake up when it is all over?  No.  It all sounds pretty scary and extreme opinions make it worse, but it all must be put into perspective. 

 

The residential real estate market, nationally, is in a major modification, which has a significant impact on the economy.  Corrections are normal events and take place daily in the capital markets.  There is a constant struggle between the bulls and the bears, a dynamic that equalizes markets as price energy rises or falls.  If anything, one has to understand that opportunities exist in all types of markets.

 

It’s been said countless or times that real estate is a local phenomenon.  For instance, last year in Cambridge prices and listings were not in a freefall.  In fact, 2007, was a significantly better year than 2006, with sales dollar volume for the year up 8 percent, transactions up 12.6 percent, and listings down 5.7 percent.  Simply put, buyers are buying and sellers are selling.  Why?  For one reason, people are looking beyond the news, which has been bombarding us since March of 2005.  It’s not that the news isn’t startling, but that underneath it all there is confidence that something positive can be found, such as buying a home, the American dream.

 

Granted, credit restrictions are tighter, but those who pass the Litmus test are better buyers.  Rates have been kicked around and it looks like the Fed will continue its program of reducing rates.  In the meantime, mortgage rates have shuffled back and forth between mid 5 percent to low 6 percent; providing super buying power.  Certainly, we are seeing a ton of first time savvy buyers without a house to sell who have had ample time to study the market.  Are they wrong?  No!  They know they are in a “buyers’ market,”  and it’s anybody’s guess as to how long this will continue; but probably longer, which smart sellers are responding to.  We will know we have hit bottom when prices start rising.

 

In the meantime, there is a raging blizzard of news, both positive and negative, but the housing dogsled in Cambridge and Somerville is still plowing onward through the storm, and providing comfort and relief to buyers and sellers who have taken the time to check the real estate weather report and act accordingly. 

 

Market Report :: December 2007

Since our last installment the Federal Reserve, as so many financial writers predicted, lowered the fed funds rate again to 4.5%.  Any euphoria was short lived, and the stock market behaved like an elevator up 'n down on any bad news but especially having to do with energy prices and sub prime mortgage issues.

 

Both Merrill Lynch and Citicorp suffered multi-billion dollar losses and each of their top executives went to the chopping block.  Not only are the consumers but also the originators of sub prime funny money taking a life change beating, and it isn’t over.

 

Major economic indexes are in conflict some reporting positive news (unemployment figures) and others not so positive such as the price of oil, the devaluing of the dollar and lack of consumer confidence.  The economic chimera has been created its two heads – one being fear on inflation and the other fear of recession - hissing at each other fueling confusion, back peddling of opinions and an honest assessment of “I am not sure where we are going.” 

 

After the last move by the fed, many thought they would rest awhile, but now it looks like they will act again.  At this writing, 30 year fixed mortgage rates are below 6% and maybe going lower.

 

Importantly, it’s what’s happening in our local sphere that needs to be emphasized.  Our third quarter and nine month market stats were great considering all the topsy turvy news.

 

The Somerville market made a comeback move with nine month dollar volume only off 14%, not bad considering the previous quarters.  Cambridge still stayed positive with dollar volume up 16.9%.  Considering that a lot of heat was applied to the market’s feet both cities stood up well.  In these market places it is not “Bah Humbug” but deserves careful consideration.  With adversity there is always an opportunity and certainly our market place has enjoyed this phenomena.  For sure the pressure in the U.S. Real Estate is not over but the Cambridge and Somerville markets have a piece of the rainbow in them.

 

P.S.  They lowered the Fed Funds today.

 

Market Report :: Labor Day 2007

The past few weeks have proved to be startling for the real estate market, especially the mortgage market.  The nation’s money supply funding home purchase loans and other debt instruments is under intense media scrutiny filled with gut wrenching stories about the collapse of sub prime loans, foreclosures, short sales, and a panicky stock market.

 

A sampling of what occurred

• American Home Mortgage Investment Corp, a major sub prime lender closed its doors filing for bankruptcy.  Other mortgage institutions teeter and some collapse.
• Merrill Lynch pulled the rug out from under Countrywide, the Nation’s largest lender in terms of loan volume, with a possible bankruptcy prognosis.
• Wall Street brokerage firms withdrew support of sub prime lenders and the stock market plunged, eating up most of its yearly gains in a few sessions.
• The Federal Reserve Bank came to the rescue, they “injected a total of 147.25 billion dollars into the financial system since August 9 in a bid to boost credit flows which have seized up due to problems linked to the distressed US mortgage market,” which lowered the discount rate, a half of a point to 5.75%.  Stock market hysteria begins to subside with the Fed’s confidence building action. (www.news.yahoo.com)
• Bank of America rescued Countrywide with a $2 billion acquisition of Countrywide’s convertible preferred stock – a timely cash infusion taking Countrywide out of harm’s way.

Consumer confidence is still shaky over housing and economic distress.  Is the Fed going to make another moved with the Fed funds rate in September?  Are there other hidden bad loans that will surface?  Will a major bank go down?  What else can go wrong?

 

Fortunately, there is a light outside the tunnel.  Credit scores are being taken seriously again, lenders are restructuring loans, but with stricter guidelines in place, and a return to more traditional lending standards in effect before the housing boom. 

 

Interest rates on conforming 30 year loans (below $417,000) have come down to 6.5% or below where a majority of loans reside.  But the jumbo market (over $417,000) has been greatly impacted with rates in the high 7% range and fluctuating daily.  If you are going for the big money or any loan for that matter have all your ducks lined up, prepare for larger down payments, full documentation and be sure to have written confirmation of rate lock.  The Ninja loan (no income, no job, no assets), is gone with good riddance.

 

You have to remember that real estate is local, even though parts of Massachusetts were effected the market, Cambridge held its own.  Sales dollar volume was up 30%, unit sales up 33% and listings decreasing 5%.  Somerville was still struggling with dollar volume down 19%, unit volume off 17% and listings down 26% but still had great buying opportunities.  Remembering that price points are key, if the property is competitively priced they will be swooped up by buyers, and if they are not priced in junction with market prices may languish and not sell at all.  Even though we are still in a depreciating market; it is still a market of opportunity, lenders are loaning and properties are selling.

 

Obviously we don’t know third quarter results, and these most likely will be impacted by the summer’s drama over money supply.  However, the Federal Reserve may lower rates, which would improve the mortgage rate situation and overall consumer confidence. 

 

As we are going into the autumn market; a short period of time with “back to school”, holiday interruptions and a less urgent buying public, it is unknown as to how the money market issues will play out.  Don’t forget that the buying pool is out there with bargaining power ready to pounce on a good opportunity.  The real estate market is still very much in business and the upcoming season is a great time to shop.

 

OCTOBER 2007 :: FLASH UPDATE

As we thought might happen the Federal Reserve reduced the discount rate ½ point thereby stoking the stock market and creating an audible sigh of relief amongst many analysts, economic gurus and the public.  If anything it was a confidence boost and predictions are that the fed may act again in the near future.  However, it does not mean that mortgage rates will drop significantly right away.  Thirty year conforming fixed rates will most likely vacillate in the low 6% - 6 1/8 to 6 3/8 percent range.  These are excellent rates and the financial platform for some great buying opportunities.  Timing, location, pricing and property condition are key factors in this market.  The fall has always been a great time to purchase real estate in a market less crowded with inventory and buoyed with offerings by serious sellers.  Act now while your competition is still befuddled as to what to do.  

Banker & Tradesman, Issue of August 20,2007

Cambridge Condos Continue To Crush Their Competition 2007 Sales Soaring in City’s Condominium Sector; Community’s Single-Family Market Remains Flat By Aglaia Pikounis Reporter   Condominium sales in Cambridge have surged 33 percent compared to last year. A renovated two-bedroom, two-bath condo at this Victorian on Hancock Street is listed for $699,000. At a time when condo sales in many Bay State communities are floundering, the condominium market in Cambridge is soaring. Cambridge condo sales have jumped 33 percent, while prices remain steady. The city’s single-family home market, however, hasn’t held up as well. Single-family home prices dipped 16 percent while sales were flat. Cambridge’s housing market has historically been flush with buyers relocating to work at the city’s universities and biotechnology and tech companies, according to local brokers. “What I’ve been struck by is how much stronger Cambridge seems than everywhere else I’ve been reading about,” said Fred Meyer, owner of University Real Estate in Harvard Square. A total of 700 condos were sold through mid-August, up from 526 during the same months last year, according to statistics provided by the MLS Property Information Network. The median selling price climbed to $426,000, a 1.4 percent increase from the $420,000 median price recorded a year earlier. During the same period, 86 single-family homes traded, compared to 88 through mid-August 2006, and the median price tumbled to $700,000 from $920,000. “I think the thing to keep in mind is that we had a huge run-up in prices,” said Davis Rowley, sales manager of the Cambridge and Belmont offices of Hammond Residential GMAC. The steep price appreciation was “unrealistic” and prices have leveled, he added. Increases in median home prices have ranged from 7.2 percent to 13.8 percent from 2000 to 2003, according to statistics from The Warren Group, parent company of Banker & Tradesman. The median price dipped 2.4 percent in 2004 to $615,000 from $630,000 in 2003. But then it surged to $717,500 in 2005, a 16.7 percent increase from the prior year, before climbing another 5.6 percent to reach $758,000 last year. Meyer, of University Real Estate, said this year’s lower median price could be because some higher-end purchasers may be holding back given the turmoil in the credit and stock markets. Fewer $1 million-plus single-family homes have been sold so far this year than last year. A total of 39 single-family homes priced $1 million or higher, including one property in the $5 million-plus range, were sold from January through mid-August 2006, according to MLS PIN. This year, 30 homes fetched $1 million or more. ‘Pent-Up Demand’ Local brokers also say that sellers, having noticed the market changes, lowered their expectations and reduced asking prices to draw offers. That strategy may be helping, because Cambridge condo sellers have been fetching 96 percent of the original asking price, according to MLS PIN. That number is up from 95 percent a year ago. Single-family home sellers have been getting 94 percent of the original list price, up from 89 percent in 2006. Meyer, however, said he doesn’t believe that’s an indication of market strength. “It’s more likely an indication, in my judgment, that sellers are more reasonable in setting asking price,” he noted. Cambridge broker John Angier agrees that sellers were adjusting prices to reflect the market. “Prior to this market, I think people were thinking 2004 prices,“ said Angier, who manages the Cambridge and Somerville offices of Coldwell Banker Residential Brokerage. “They got re-educated and those people who were really serious ... were willing to sell their properties at a deeper price cut.” At the same time, buyers appear to be more confident, according to Meyer. “They’re not scared to do what’s normal,” he said. Angier said condo sales may have jumped because many buyers, originally scared off by all the news reports of a slowing market, have now re-emerged. “I think there was some pent-up demand. People didn’t buy and now they’re coming back,” said Angier. Still, Meyer acknowledged that buyers are cautious. “I don’t see many people coming in and saying, ‘I’m here for a two-year [master’s] program; can I or should I buy?’” he said. Instead, he is seeing buyers who are planning to stay in Cambridge for longer periods. “I often say to people this is not a soft market and it’s not an abnormal market,” Meyer said. “This is a normal market.” One of the biggest changes in Cambridge’s market is that the number of homes listed for sale has fallen dramatically. There were 322 condos on the market as of last week, far fewer than the 462 listed a year ago, and only 43 single-family homes on sale, compared to 72 during the same week in 2006, according to Rowley. Rowley said his office has a pool of buyers who are waiting to find the right property. “There’s not enough supply for them to choose from,” he said. At the current sales pace, the residential real estate market is tracking closer to 2005, which was stronger than last year’s market, according to Rowley. Some 1,413 condos and single-family homes were sold in 2005, compared to 1,237 last year, according to The Warren Group. “The pace of the market is quicker,” said Rowley, noting that the time between when an offer is accepted and closing date has shortened. Meyer noted that over the long term, buying a home is typically more advantageous than renting for most people. “Over the long term, it’s a no-brainer to own. But you just never know what the short term is going to be and that’s always been true,” he said. For now, Meyer opined, it’s a good time to buy. “If anything, the uneasiness in the stock market makes people turn back to real estate,” he said. “There’s something comfortable about hard assets.”

 

Market Report :: May 2007

 

If one is to judge the real estate market from the media, it is labeled as down and out for the count.  There are so many conflicting reports leading to confusion rather than cogent thinking or conclusions.  Reporters are trying to generalize about a market that is specialized to price point and local to economic pressures, demands and energies.  It doesn’t fit neatly into some convenient compact statement except that it most always presents opportunity which is hardly ever hinted at.

 

Back in late October 2006, I published a list of buying signals germane to our area and most are still true today.  To name a few, mortgage rates haven’t moved much from the cusp of 6% offering terrific money and buying power.  A strong stock market which fuels down payments absorbed the negative sub-prime mortgage fiasco and then went to new ground.  The market “bubble” theory hasn’t been mentioned in several months specifically because it didn’t happen.  2006 produced a much needed price repositioning that stirred up the buying pool.  Smart sellers and tough negotiating by buyers has had the desired effect – prices came down before going on the market and properties sold, deals percolating.  The year 2006, was a bitter tonic for 2007 and there is still some strong after taste.  Locally, the first quarter of 2007 had some interesting results for Cambridge where dollar value for sales was up $83.7 million or 39.6% verses 2006 and the listing inventory was virtually flat.  Pent up demand helped absorption, along with the attrition of those properties that couldn’t cut the market realities and were withdrawn from the market.  In Somerville the market was still feeling the effects of 2006 with dollar value down $13.4 million or 11.8% and listings down 27.4%.  The inventory shrinkage is good news as the market was overloaded.  Remembering that real estate is local, it is local for Cambridge to rebound first and Somerville get carried along which it will.

 

Interestingly the Massachusetts economy throughout all the hoopla about the housing crisis was going about its business especially in the technology and medical sectors adding to employment figures.  The Boston Globe reports on April 28, 2007 that first quarter growth for Massachusetts is four times the national rate.  Employment is good news for a real estate market especially in our urban environment.

 

So how does one interpret all of this?

 

I liken the market to a chemistry experiment with beaker and Bunsen burner, the burner is turned down low and the market inside the beaker is simmering, slowly cooking, but not of “boil and trouble.”  To be sure the dynamics are tricky but one is on less of a slippery slope than in August of 2005.  No one wants or needs a crazed housing market but do appreciate a workable one.  The first quarter of 2007 harks back to a traditional spring market where a majority of business is done in the first half of the year into the summer with relief and catch up in the fall.  There is still plenty of room for price and attitude adjustments on the part of all parties, buyer and seller.  Every situation has to be assessed and critiqued as to the feasibility of opportunity – is it there?  Again, one has to survey local conditions but in our market place many buyers and sellers have been convinced it’s so.  I’m sticking with my comments of October where we are almost out of the current but are not going out with the tide.  I am betting that my chemistry experiment will not explode and in the long run will be successful.

Market Flash :: Buying Signals :: October 27, 2006

In the past 2 weeks there have been buying signals in a depreciating market that is not all “doom and gloom”.  Granted there is a bucket load of media negativity since March 2005 which won’t go away over night, but we might be at a turning point of sorts.

Interest rates have slipped under the radar of the naysayers and have come down to 6 1/8 and may go lower in 2007.  Good buying power!

• Inflation – the Consumer Price Index was down .5% signaling inflation is not out of control and a favorable message to the Fed who can stay the course on rates or even think of reducing the Fed funds rate in the near future.
• Stock market breaks the 12,000 barrier – Excellent for raising down payment cash
• Quotes from Alan Greenspan – Market possibly sees its lows
• Technology markets in the Massachusetts have rebounded and strengthen the economy.  More jobs have been generated.  The state’s economy badly hurt in the recession earlier in the decade is bouncing back – 33,000 jobs added over last year and 61,000 since 2003.
• Mass economy boosted by demand for technology products grows 3.4%, twice the U.S rate
• Article from WashingtonPost.com “All Crashes Should Be So Good” quoting Donald Kohn, Federal Reserve Vice Chairman who sees no imminent bust or crash but is a correction to where prices are more in line with what consumers can afford.  Lower asking and selling prices on houses are integral parts of the self-correction.
• Quote Mark Zandi, Chief Economist for Moody’s Economy “Boston is very close to the bottom, if the price declines aren’t over, they’re pretty close to over”.
• Kimberly Blanton’s Globe article of last week – a turn around?  Is she seeing there is NO bubble?  Which way is the house boat going?
• Hub population rose census review findings
• Smart sellers have responded and reduced prices attract bids from buying pool.  Read between the lines which spell opportunity.
• Developers coming back into the buyer’s market.  “We think residential prices are going to explode with a vengeance.  A lot of people who are balking at filling their housing needs may be very sorry.” Robert Epstein of the Abbey Group.

It’s impossible to call the bottom of the market, but there is a sense that the climate is changing.  The negative pressure is still there, but like a rip-tide current it eventually weakens and its possible to float and swim out of it.  I think we need to start stroking.

Labor Day 2006

Over the last eighteen months the Residential Real Estate Market has been a huge media focus with topics “doom” and “gloom” leading the way.  We have heard ad nauseum multiple “bubble market” theories, “hard” or “soft” landings and everything else that can go “thump” in the night.  All the prognosticators of the market are vying for boasting rights “I called the market of 2006-2007”  In the meantime, some very obvious events were occurring but not picked up by the negative prophets, or at least reported on.

 

First of all, the residential real estate market is like any other commodity market sinking or swimming based on supply and demand.  It drives on competition and the public ultimately determines value based on quantity, quality, location, and probably most of all price and the cost of money to fund the purchase.  It is also a local phenomenon where areas, regions, towns, and cities differ on strength of price points, inventory and volume of sales.  Therefore, generalizing about the market as a whole, is very difficult and a disservice to the consumer.  One needs to research real estate questions guided by very specific criteria to develop a balanced answer.  As an example, to express that we are in a declining market doesn’t say much unless it points to specifics.  The pundits would have one believe that the whole market is awful, but wise analysts know that there are always opportunities.  For instance, the amount of inventory coming on the market for sale is the big buzz.  It seemed that everyone is trying to cash out – flooding the market and suffering prices.  True prices depreciated, but the quality of the merchandise is not all good with a lot of clutter disguising some excellent product.  Thus, the real inventory that met the criteria of price, condition, competition, and location sold.  It isn’t magic, just cold, calculated business like principles that used common sense supporting facts and the will not to go along with the flow but to set one’s own standard.  Was this a balloon popping?  Was it a “hard” or “soft” landing?  No!  Amidst all the hubris of doom and gloom, unemotional buyers and sellers are making deals.  Yes, prices have come down, a normal by product of supply and demand and in the long run good for the market environment and opportunity. 

 

Another development occurred: the cost of money went up buoyed by the Federal Reserve Bank and market forces.  Everyone was predicting 7% plus mortgage rates and for all intents and purposes the rate went to 6 7/8% and suddenly stopped.  As of this writing, a 30 year fixed mortgage with no points is at 6 1/4% and most likely will stay flat or possibly go a little lower.  Something happened that defied prediction and the price of money is a very attractive buying power feature in the home buying process.  Is it not tempting and most likely a good business move to couple attractive money and an attractive offering?  It is so easy to miss the point in all of this by being overwhelmed by media opinion and not working the obvious – we have a market as we always have had that is not for the faint of heart, but is a working byproduct of matching sellers and buyers desires, needs and ability to perform.  There is no perfect opportunity and one has to make and earn it.  Whether the real estate market is up, down, or balanced, one has to read between the lines and make the intelligent decision.

 

So what do seller and buyer’s do?  Sellers literally need to get “their house in order”.  Prepare it for sale, be committed to the process and understand the cold facts of a depreciating market i.e. don’t overprice it but position it to outdo the competition getting offers which lead to sales.  Buyers need to weed through the housing stock because there are excellent hidden offerings.  Value is in the eyes of the beholder so seek it.  Yes, we are in the midst of a real estate market repositioning which is not all bad and for the long term offers a lot of good.

 

Sub-Agency Begone
May 5, 2006

A significant event took place in July 2005 for Massachusetts Residential Real Estate-the legislated demise of Sub Agency, where agents working on behalf of the listing agent and representing the seller as well no longer have to be recognized and or compensated. Until then, Sub Agency was a piece of the real estate landscape, featuring seller, listing agent and sub agent with customer in tow and no such thing as buyer representation. Then in the mid 90’s, the state allowed buyer representation and the scene began to slowly change with some firms practicing buyer agency though sub agency, throughout the legions of agents, was still prominent. Now seller representation has changed. Real estate firms, because sub agency presents the seller with vicarious liabilities, have done away with it. Now, for the majority of firms, only buyer’s designated agents are recognized or less importantly facilitators who have no power of allegiance or representation on behalf of buyers or sellers. Sub agents have become an anachronism, a dinosaur if you will, of the real estate industry. No longer do you have a posse of sub agents in the field espousing the benefits on behalf of sellers of their properties. What you have, other than only the listing agent representing the property, are buyer agents representing buyers with all the responsibilities that position entails, most notably fiduciary responsibility to the buyer, not the seller.

So what does all this have to do with the “Price of Fish”? Nothing with fish, but significantly, this change occurred when the media was blasting away at the supposed real estate bubble. One negative column after another appeared discussing inventory, pricing, mortgage, real estate industry practices, etc. However, not much was mentioned in the media about this change in Massachusetts Real Estate Law. By August of 2005 the market slowed, not unusual for the time of year, and fueled by sellers fixated on overpricing and inventory buildup. A lot of properties seemed to stagnate with certain price points becoming top heavy, especially in the entry level arena. Affordability issues became paramount and questions for the first time buyers about premiums one would have to pay over renting: on balance, was owning a good idea? In the meantime, mortgage rates began to creep up. By the holidays the market was pretty much wrapped up, but what was unwrapped was the power of buyer brokerage. Buyer agent’s interests were their buyer’s interests, not the sellers, and if a property didn’t present well, it might not show or it might have very low offers presented. What happened is that the community of buyer brokers became the first tier customer. If properties were overpriced they couldn’t expect to be sold because who knows better than the professionals in the field who constantly think comparative value. This was an unconscious evolution because prior to July 2005, there was division, confusion and ripe controversy over buyer brokerage. But once July came and went, you had to be on board. Once it sunk in that agents and buyers, via a written contract, were wedded in representation, then the paradigm shifted.

If a property wasn’t up to snuff (price, condition, location, etc), it wasn’t going to be an easy sale, if it sold at all. Properties now, more than ever before, had to pass muster by the brokerage community. The reality that overpriced properties don’t sell, especially if there is a large inventory, became real estate’s reality show. This has not just been an abject lesson for sellers, but one for the buyers as well. The professionals in the market, because of changes in the market standards, communication and the scrutiny of the media, have become more valuable than ever. It is no longer an issue of trial and error on pricing as no one in this market environment has time to waste. This includes sellers, agents and especially buyers. The professional demands of the industry dictate zero tolerance for mediocrity. The residential real estate market is a full-fledged business that for the last few years was one of the backbones of the US Economy. New blood, technology, as well as new representation is making it a dynamic 21^st century business focusing on the value of the individuals who comprise it, which in turn presents value to the public.

  

The Spring Market
February 13, 2006

The beginning of the Spring Market is off and running with many more questions that have answers than at this time last year. The market has absorbed a barrage of negative publicity since last year; especially the "bubble theory" that everything was going to pop. That has hardly been the case, but with increased inventory we have had price reduction. Market corrections are healthy and they happen in all markets. It is too early in the 2006 market to make any great predictions for market strength or where pricing structures will go. One constant parameter of the market, though obvious, does stand out - affordability. This is especially true in entry-level housing. For several years rent rates have been flat without much to stimulate that market. However, mortgage interest rates have gradually risen from the low 5's to just over 6% in the last year, with predictions that it will reach 7% by 2007. So the quandary for most people now is "should I or shouldn't I?" What kind of premium will one have to pay to go from renting to ownership? What are my margins with a rising interest market? One thing is happening; smart buyers are picking off properties now, avoiding the growing competition that will occur once warmer and longer days appear. So what does one do if you are ready, willing and able in the early 2006 market? First of all, sharpen your pencil, get out some paper, and start calculating. Find out what you are capable of purchasing from your Real Estate broker or mortgage broker. Talk to them about what's available for purchase and the costs involved. Weigh the pros and cons, and make a decision. Let your needs and your heart drive the decision. It's a great time to buy and let the right people help you - your professionals at Coldwell Banker.

John M. Angier

  

The Fall/Winter Market
October 25, 2005

As we rolled out of the third quarter, into the fourth, a market shift occurred into a seasonal swing – more of a traditional bent to it. Typically, the latter part of August is a market wind down featuring the end of summer vacations, school preparations, and for many, the last gasp of summer with an elongated Labor Day holiday. It is almost a period of letdown where realtors are exhausted from nine months of torrid activity and those urgent “home shoppers” have fulfilled their dreams. There are holidays; religious and Columbus Day, which create a pause. For sure, these reasons and others contributed to a slowdown, but the following factors were probably most important:

• The media finally got its way and after months of pounding negatively on the real estate industry, creating reality out of perception: that whole bubble things, etc. So the stage was set for very wary buyers and not so savvy sellers to come to the center of the real estate theater.
• Unsold inventory began to build up with absorption rates and under agreements slowing - buyers, through the media and web messaging, got the idea that the property stream was never-ending and one could wait.
• A component overlooked is the state of the soft rental market. With rents at their present level there is no push for the entrance level buyer to move forward at recent prices, therefore this puts downward pressure on the price points above entry level. In essence, buyers who own an entry level product aren’t able to sell and buy at higher levels. A harbinger of this were people buying in the late spring, before they could sell and finally having to unload at lower levels due to the burden of bridge loans if they were responsive. Some were not and suffering the agony of paying multiple mortgages.
• Interest rates moved a bit, to over 6%, but not enough to create a buying frenzy with the cost of money still ex1cellent.
• Buyers have been quicker on the “uptake” of information than sellers. Sellers, who were smart, quickly reduced prices and invited the buyer passenger to climb into the front seat with them and help drive the vehicle. Unfortunately, the majority of sellers have abdicated control, stood fast on prices and were forced into the back seat with the buyers driving. Consequently, those properties are building days on market.

In this market, but not unlike other markets, one must be timely or else be prepared to sit and wait. That is true for both buyers and sellers. The upshot is that the market environment we are in requires action and decision. Prices in many sectors are off 10 – 12%, offering tantalizing values. Most likely, we will not see double digit appreciation next year, but more in the realm of 5 – 8%. If a seller is not willing to lead in the market then they should retire awhile until their attitude and the market settles. It is pointless to be presenting properties that are outdated value wise. This is no time for sugarplums and fairies as a real estate market strategy – save the plums for the holidays.

In the past week, mid-October, we are seeing a moderate resurgence of interest of sorts. The buyers are there and some of them are biting. Don’t look at the market bleakly, but understand a Fall/Winter market is an opportunity. There is less pressure, less frenzy and maybe more rational thinking with an emotional purchase (if there is such a thing). So, buyers look carefully and use your buyer agent to strategize, structure and make offers. Sellers, listen up, and be first in line to sell. Don’t wait to be last. The market isn’t going to bust. It is solid and has lots to offer. Advice: Put your broker to work.

For questions, comments, or opinions, please contact me.

John M. Angier

 

The Housing Market
August 11, 2005

It seems there is a great deal of confusion as to what’s happening with the housing market. The media can’t make up its mind. Some “nay Sayers” have been predicting a market comeuppance for several years and they have missed a very strong market. For some writers it’s as if they wish for disaster, if anything to prove themselves right and with an underlying attitude of “how dare they,” the consumers, not heed their advice and close their pocket books. What impertinence not to bend to their gloomy prognostications. How dare interest rates stay affordable and give the American public sustained buying power? Gleefully, they interpret any rise in the Fed fund rates as a rightful stick to whack the consumer with increased annual payments on equity lines. We warned “you’ll be sorry.” The media belies the fact that today’s buyers are well informed and can make up their own minds. If they need further clarification they can seek advice from the professionals in the business – real estate agents. The upshot is the confusing media have driven the buyers and sellers to a primary source for advice and action on their behalf.

A professional in the Real estate business will have definite opinions on the following, to name a few:

• Interest rates
• Real estate market price points
• Market sales absorption figures
• Market trends in various home categories (single families, multi families, and condominiums)
• Opinions on buying or selling at this time
• Investor opportunities
• Tax exchange programs
• Agency representation
• The Internet’s impact on Real Estate
• The media:  the market voyeur

Top agents understand all these factors and more in assessing the real estate market. They know that what drives the market is the consumer, not the agent, and that buyers as well as sellers need three ingredients: desire, need, and ability to complete a transaction. Per capita income and a growing population drive markets and real estate is local, local, local. What’s happening in Fort Worth probably has no bearing on what’s occuring in Boston. Agents know that if mortgage originators are doing volumes of pre-approvals, then business will follow. They also know that the real estate market does not have the volatility of the stock market and if a softening occurs, it doesn’t happen overnight. Most people buy houses to live in and, yes, are concerned about value, but while living there, don’t fret about it daily. So in essence what about the real estate market bubble theory – it’s going to pop?

There is no national housing bubble to pop. Certainly, there will be market location and price point soft spots. Where the residential real estate market has been overzealous, there could be a market shift. One must keep in mind that over the last 50 years there have been 9 or more recessions with home appreciation after each. We have seen average housing stock grow in size from 1100 sq. ft. to 2200 sq. ft. with incremental construction costs and per square foot price appreciation. On balance though, for that period of time, there has been, nationally, a 4.8% average growth rate (source E.H. Boeckh and Assoc.) which is not the stuff of bubbles. Of course, we have seen an unbelievable increase in values and if anything there could be price deterioration, but not market collapse. Our market, like all markets, is subject to supply and demand. Demand is fickle at times, especially in the real estate market and subject to seasonal adjustments. So what should the consumer do, especially with a host of divergent opinions? Consult with your local real estate professional for the reasons already given. Develop a rapport, create an overall strategy, employ tactics and succeed in your real estate mission.

For questions, comments and opinions, please contact me.

 

John M. Angier