Brooksby	UPDATED: Friday, November 17, 2006
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Is the Housing Bubble Bursting?

Posted on Wednesday, November 01, 2006

Experts Say New England Real Estate Not Down, Just Correcting

By Robert Doherty

THE ERICKSON TRIBUNE

You’ve been reading it and seeing it every day—New England real estate market down, real estate slump, real estate decline. Those descriptions may be accurate, but only if you compare them with the hugely overpriced market from two years ago.

Unfortunately, that market is long gone. The real estate market today is correcting, and in the process of stabilizing, say some experts. “The New England real estate market today is certainly on the path to correcting itself,” says Shawn Cayer, principal broker for Windhill Realty, LLC, in Ipswich, Mass. “We’re optimistic that this path will now lead both sellers and buyers in a positive direction,” he adds.

According to the Associated Press sales of single family homes in Massachusetts have seen such a decline (27 percent and condo sales fell 23.5 percent through July) that it’s hard to believe that the bubble hasn’t burst, but if you consider the record- breaking price escalations from two years ago, that seems to be the case.

Still Correcting
According to PMI Mortgage Insurance Companies’ Market Risk Index, areas in Massachusetts have a 58.8 percent chance of a decline in home prices over the next two years, one of 13 markets nationwide that “face a 50 percent or greater risk” of declining.

“Monthly fluctuation can happen,” says Timothy Warren, Jr., chief executive of the Boston-based publisher of regional real estate and financial data. “We’re not pressing the panic button yet, but we are watching the trend lines very closely.”

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Planning to Sell
Forecasts like these have a tendency to make people act irrationally. Those who were planning to sell their homes to free up equity may decide to cancel those plans—but that’s a mistake. “Each case is certainly situational, but if you need or want to sell, now is the time,” Cayer says. “Unfortunately if a person bought up to 24 months ago, it’s unlikely they’ll get their original purchase price. But for a homeowner who has held their property longer and maintained it, those are the folks who will do well if they price correctly.”

Real Estate Cycle
It's easier to guess the stock market than it is to guess the real estate cycle—and no one can guess the stock market. There is no telling when the correction will end. The last real estate and housing peak was in the mid 90s, although housing booms usually occur once every 20 years, according to a study by the International Monetary Fund.

The study gave few clues on what causes house price booms and busts, but IMF economist Jonathan Ostry said one factor that precipitates a bust is when the central bank raises interest rates.

Sales Are Down, Not Prices
The New York Times reports that an analysis of housing sales over the first six months of the year shows a much weaker market: volume dipped by 17 percent statewide and the inventory of unsold homes rose by 70 percent. That’s why it is so important to price your house to sell.

"Smart pricing can actually make you money. New listings, even in this market, are hot commodities if priced correctly with a solid marketing plan to support it,” adds Shawn. "If you price high in the beginning, interest is low and it will definitely sit – your final return will be far less than if you priced correctly from the start.”

If you’ve lived in your house for a long time and are thinking about other options, now may be the right time to sell. You’d be freeing up hundreds of thousands of dollars of your hard earned money to do what you please. Maybe you want to explore another lifestyle options—options that will afford you more freedom and opportunity.