There has been a lot of news over the past week or so about the residential market and whether or not it’s improving. David Lereah the chief economist for the National Association of Realtors applied his usual rosey spin to the recent reports. I’ve had a number of people say to me that they’ve heard the market is improving and I though I’d take a moment to qualify some of the information you may be hearing and also bring it home and apply it to Massachusetts.

Statistics did show that we had a significant bump in existing home sales in January. This is a good sign that homeowners are starting to get realistic about the market and about the value of their property. New home sales however took a dive at a rate of 20.1% from this same month last year. There is some concern in the market that the stock of vacant new construction and renovation could be a larger-scale looming bust than we’re already dealing with. Non-Accrual loans (loans that aren’t being paid anymore) in the construction row of the thrift reports from the FDIC continue to expand for many lenders.

Foreclosures continued to soar at a record pace. 2006 saw a 62% increase in foreclosures in Massachusetts. The worst foreclosure rate in more than a decade. So called “exotic” (interest only ARMs, option ARMS) mortgages are largely to blame. Over the last 3 months we’ve seen a number of subprime lenders implode.

Lax lending standards were a major driving force behind our recent boom. Fannie Mae and Freddie Mac are making significant adjustments to their standards and this is going to affect the ability of many people to enter the market which may put further pressure on home prices.

Probably the most disconcerting component in our economic situation (to me) is the fact that a lot of our consumption as a nation has been driven by the spending of equity over the last few years. Many, many people are now facing a situation where they limped into the real estate market on an ARM, watched their equity rise rapidly, spent it, and have now watched their equity vanish. Where this is going to leave the economy in 6 months or a year is for an informed economist to say, but it makes me nervous.

Let’s take a look at the numbers.

These are our statistics according to MLSPIN the largest Massachusetts MLS. The following chart shows the number of properties (Qty.) by type, the average Days on Market (DOM), and the average Ask Price.

On Market Snapshot

You can see pretty clearly from these numbers that the number of homes on the market and the length of time ti takes to sell them has continued to rise. You can also see that across the board prices have fallen.

The Bright Side

Is there a bright side? Absolutely. BUY. This is an excellent time to buy. If you’ve weathered this storm so far and you have some cash go and buy. I would urge you not to be looking to “flip” properties right now but certainly you can buy and hold. Interest rates are still low so money is cheap. Real estate is cyclical, right now we are in a down market, it will come up. Look for properties that have been on the market for a while and have had a number of price reductions and low-ball. You might have to do it 3 or 4 or 5 times before you get the deal that you want, but the deals are definitely out there. Banks are talking ’short-sale’ with lots of sellers right now and it may just be your opportunity to work something out.

Please DO NOT go find yourself a single-family or a single condo that needs a lot of work and try to put some sweat equity in and flip it in 6 months - this is not the thing to do right now. DO find a solid multifamily close to public transportation that the owner hasn’t spent enough time making marketable and steal it. If you are beyond holding multifamily properties, call me, there are a number of larger scale opportunties out there right now.

If you are in a position where you need to sell - this is not the time to price it high and see what you can get. You can guarantee yourself a significantly discounted sales price if you do this. Buyer’s are too savvy and too educated to buy high accidentally in this market, pricing high is a losing proposition. Every day that you are on the market will cost you in your final price.

DO price your property with some exactness. If you are priced like a deal right out of the gate you have the best chance of drawing more than one offer (yes it’s still happening out there). Make sure your place is in top shape but DON’T put a bunch of money into improvments because it is not coming back to you right now.