May Existing Home Sales fell short of expectations. Month over month home sales only increased 2.4% versus expectations of 3%. This is notably weaker than the strength of the pending home sales reports where the latest report was a rise of 6.7%. There is true irony in the shortfall. Normally, in this environment, the finger would quickly be pointed at the banks, but that is not the case. The National Association of Realtors has pointed the finger squarely at the appraisers. According to NAR, “However, the increase in sales is less than expected because poor appraisals are stalling transactions. Pending home sales indicated much stronger activity, but some contracts are falling through from faulty valuations that keep buyers from getting a loan,” and “Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales.” The 180 degree reversal in appraisals illustrates the essence of the bubble-bust environment in which we live. Just 3-4 years ago, it seemed as if appraisers added value to a property simply because the sun came up that morning. Fraud was rife, and as we all know, many unqualified buyers bought homes they could not afford. Today, asset values have significantly corrected, housing has been in a 4 year downturn, we are 18 months into the longest post war recession, and as buyers finally materialize, the appraisers are afraid to give the valuations that support the prices buyers are willing to pay. There are essentially $10.5 Trillion in mortgages out there and a significant portion of those were made at higher price levels. Now, when the smart and patient buyer steps in at low levels, the valuation is an issue. In any market, if someone does not pay above the last sale price, then you will never see a rally. Homes are not nearly as liquid as equities, but the self interest of free markets will prevail (sorry, free markets with government subsidies). Obviously, it is preferential to see these deals closing, regardless of the distortion in the market place. It is still a positive sign that trends are shifting in the right direction.
The high end market has been stagnant since the meltdown in the financial markets last September. While it has been raining here in Newton most of the Spring, the high-end housing market (homes priced above 1.5 million) is seeing some sun. During May and June 13 homes have gone under agreeement or sold. That is a significant increase over the 10 homes under contract from January thru April. The average list price was $2,310,269 and average sale price is $1,997,083. The list to sales ratio is about 86%. Worth noting, the average days on market was 217 days, 5 of the 13 were on the market between 221 and 808 days. Homes more recent to the market average 86 days and will probably garner closer to their asking price. On a personal note a 2.5 million dollar home in excellent condition I brought to market last Thursday has had 16 showings, and 3 second showings. We are negotiating one offer and are told we are getting another offer. Compare this to a beautiful home I listed in March for 2.8 million I had a total of 8 showings in 2 1/2 months before we decided to take the home off the market.
San Francisco entered the decline before Boston and seems to be recovering ahead of us also, although suburban Boston did not see the steep drops San Francisco did. MDA DataQuick reported on San Francisco home prices. Although they are down 34% year over year, they were up 12% month over month and are up 18% from the March cycle low. The rise in median price is a sign that the high end is starting to see some signs of life. Sales of homes $800,000 or more were 13.2% of all resales, the best reading since October’s 14.8%. Jumbo mortgages accounted for 25.5% of the Bay Areas sales, which is also the best reading since October’s 25.8%.
Home sales in Newton under 1 million dollars are brisk, with some receiving multiple offers and most receiving close to the asking price. However, pricing is still key, overpriced homes are not selling at any price points. The condo market continues to be very weak with the recent tightening of mortgage guidelines for condos. There are loans for condos, but it helps to have a knowledgeable mortgage broker.