Will home market blossom in spring? A cold hard look

(Wiqan Ang for the boston globe)

The bellwether spring housing market is around the corner, but the nation's credit crunch means it's more difficult for buyers to obtain mortgages. Timothy Warren Jr., chief executive of The Warren Group, a Boston real estate and research firm founded by his great grandfather, Willard Warren, answered questions about Massachusetts' market for Boston Globe reporter Kimberly Blanton.

Q. How's the state's market currently?

A. The market took a dive starting last summer, and the number of sales fell dramatically in some months - often 20 percent, or more - compared with the same month a year earlier. Right now, the housing market is very slow. A year ago, almost one-third of the mortgages that were being written were for people who had poor credit ratings or could not fully document their income or employment. The loans available to those people have completely dried up. It's no surprise sales are off by 20 percent, because so many people who previously qualified for mortgages no longer qualify.

Q. In 2007, the state's median house price fell just 1.5 percent, to $330,000 - is it really that bad?

A. The prices haven't fallen nearly as much as they did in the three years' decline in the '90s. Our single-family median prices in Massachusetts fell 10.2 percent for three years from 1990 through 1992. In the past two years, 2006 and 2007, Massachusetts saw a total decline of 2.8 percent.

Q.What do you expect for foreclosures this year?

A. The number of foreclosure deeds filed in 2007 was 7,653. The number of petitions, the first stage of the process, was 29,607 - a record. I expect both numbers to continue to climb. And the number of people entering the foreclosure process increased dramatically in the second half of last year.

Q. Are foreclosures an isolated problem in some communities or is their impact spreading?

A. If about 7,000 homes went through foreclosure auction last year, the lender bought them and now is trying to sell them. If 29,000 properties entered the foreclosure process, all of those people are trying to refinance, borrow from their parents, or do something. But a lot of them are going on the market. Distressed properties are dictating the whole market in many communities.

Q. Is this the state's worst housing decline since the early 1990s recession?

A. The decline in the number of sales may already be worse than what we had in the '90s. In the 1990s, we had just two years when the number of sales declined. We are in the fourth year of declining sales in the current slump. The decline in our median price doesn't look as bad as it did in the '90s, but the downturn stands a chance of being more prolonged. If 2008 is another year of declining price, this would be the third year.

Q. How long did it take to climb out of the '90s slump?

A. It was a very slow recovery. After prices stopped falling in 1993, it took six years for the Massachusetts median price to exceed its level before the slump started. People say, 'When is the recovery going to start?' I say maybe next year, but after the recovery starts it might take five years.

Q. What do you predict for the spring market?

A. Slow.

Q. Is the credit crunch on Wall Street making it harder for everyone to get a loan?

A. Yes. It's due to tightening loan standards and less liquidity. Lenders don't want to take risks anymore. Most people can't buy a house without a mortgage loan, so there are going to be fewer houses sold. The number of single-family home sales was down about 10 percent for all of 2007, though the pace accelerated at the end of the year. It wouldn't surprise me if this year it's double that.

Q. Could government have prevented this crisis?

A. In hindsight, the government made a lot of mistakes. Perhaps the Federal Reserve fueled 'irrational exuberance' in real estate prices by keeping interest rates low. The easy money, low interest rates with low documentation requirements, and 100 percent financing just made it too tempting for people to jump in. People assumed prices were going to keep rising and refinancing was going to solve any problem they had of meeting their mortgage payments. It's like playing Monopoly with fake money.