As noted by one prominent critic, "current house price indices are failing to pick up the full decline in prices because they miss the various concessions (seller paid closing costs, buyer-side realtor bonuses, and seller subsidized mortgages) that sellers often use to move their houses."

That problem is compounded by the fact that median prices can be misleading, particularly when rival data sources reported different median prices in Massachusetts in July 2006. The Massachusetts Association of Realtors (MAR) reported that single-family prices declined 3.5 percent statewide, while The Warren Group calculated a 6.1 percent decrease.  Adjusted for inflation, year-over-year prices fell 7.8 percent using MAR's stats and 10.2 percent using The Warren Group's according to BostonBubble.com.

To help get behind the confusion, The Real Estate Cafe created a real estate bubble map to document falling prices on a property-by-property basis.  We'd also love to use the map to document innovative sales incentives being offered by sellers, listings agents, and developers in Boston and beyond. Locally, one listing agent recently mailed fellow agents coupons for $20,000 off a new development in Cambridge.  That seems modest by comparison to the ambitious "Summer Full of Savings" being offered by one homebuilder across 17 developments in California.

Please let us know what's happening in your market, either by posting your comment below or on our RealEstateBubbleMap.com. We're particularly interested in learning which sales incentives you find most appealing, as well as seller concessions you've requested in recent offers (like asking sellers to pay your closing costs).

Industry's seller bias understates risk to homebuyers

Wednesday, August 23— Kudos to the Boston Herald for asking "Has the Mass. housing bubble burst?" on their front page this morning.

If homebuyers focus on median sales prices, they might reach the same conclusion the Massachusetts Massachusetts Association of Realtors (MAR) did three months ago when they told the public that a "New study finds no evidence of a “housing bubble” in metro Boston."

After all, according to MAR's report on existing home sales during July 2006, median single-family home prices decreased just 3.5 percent from the previous year, despite declining sales during 17 of the past 18 months.  To their credit, MAR also disclosed:  (1) that is the largest annual price decline since March 1993; (2) median sales prices have declined for six consecutive months, and (3) that is the longest slump since housing prices fell 13 straight months from March 1992 to March 1993.

What raises questions is that The Warren Group reported that median sales prices for single-family homes fell by 6.1 percent or 74 percent more than MAR's figure.  Maybe that's because MAR based their assessment on a median single-family price of $361,750; in contrast, The Warren Group's median (which includes sales outside the MLS) was $339,000 or $22,750 (6 percent) less.  Far more alarming is that The Warren Group figure is $1,000 less than their median sales price two years ago, $340,000.

So, despite the lowest prices in two years and the sharpest drop in sales since 1995, what's distressing—to me as a buyer's agent—is that MAR's talking points continue to understate the risk for homebuyers:

"Today’s lower prices reflect softening buyer demand and rising in inventory levels, which have started to trigger modest price adjustments on the part of sellers. With demand still historically strong though, major price corrections are unlikely."

If homebuyers look beyond median prices to individual transactions, they'll see that major price corrections are already underway.  The Real Estate Cafe has already mapped nearly 400 sales below assessed value across 27 of the most expensive cities and towns in Greater Boston.  In coming days, we'll post another 200 sales to our real estate bubble map including 50 in Greater Boston plus another 150 from Southeastern Massachusetts, primarily on Cape Cod courtesy of RealtyInsite.com.  If you see evidence that prices are falling, please post them to our real estate bubble map or create your own.  If you're one of our clients, we'll reward you for each property you post (see "Tipping Policy" for more detail).

The Real Estate Cafe 97a Garden Street Cambridge MA 02138 617.661.4046 recafe@mac.com