bostonbubble.com

[guest]

Hi! From what I hear rents are in line with mortgage payments. For instance in Natick there are 1 bd condos going for $170k or so and the rents are about $1000-1100/mo which is around the same as the mortgage payment, so how is this a bubble??

[admin]

I personally do not think that a mortgage payment is a good gauge of how affordable a property is. For one thing, it ignores several other costs - off the top of my head:

• Property taxes
  
• Condo fees
  
• Insurance
  
• Maintenance
  
• Transaction costs
  
• Opportunity cost
  

It also ignores:

• Size of down payment
  
• Inflation
  
• Interest rate trends. This is a big one, in my opinion. With interest rates still near historical lows, it would be reasonable to expect them to be higher several years from now when you sell the property, which in turn will reduce the ceiling of what others will be able to pay.
  

With that said, your anecdote sounds anomalous to me. Can you post links to these condos and equivalent rentals, as you have piqued my curiosity?

- admin

[guest]

Example:

Natick Village
11 VILLAGE HILL LANE #7, Natick, MA 01760
1 bd, 778 sqft
List Price: $160,000

30yr fixed, $6400 down (3% downpayment, 1% closing costs), 6.173% APR (good credit)
Principal+Interest: $893
HOA: $193
Property taxes: $140

PITI + HOA: $1226

MLS#: 70669955

Equivalent rental in same Natick Village community: $1100/mo
http://boston.craigslist.org/bmw/abo/521724103.html

Difference is $126/mo. but you're with buying you are:

- Building equity
- Insulating yourself against inflation (rent goes up, mortgage stays the same)

Based on these facts, please advice on how buying is detrimental right now.

[guest]

Another point I failed to mention is the mortgage interest deduction that would subsidize buying even more so it turns out when all is said and done buying is cheaper than renting.

[admin]

The Warren Group lists the most recent median condo price for Natick as $264,500, so your example doesn't appear to be representative. I think you would find that buying is significantly more expensive than renting if you use the typical prices rather than outlying examples. You also left out maintenance and insurance and your estimates for transaction costs and mortgage rate are pretty optimistic. You will also be losing equity, not building equity, if the price of the condo follows the trajectory predicted by the futures market.

However, that isn't to say that good deals aren't starting to appear - maybe that $160K condo actually is a good deal and you should go for it. Maybe you have found a seller who is ahead of the curve. It's hard to say without looking into it in a lot more detail. I think that typical prices are in a bubble, though.

- admin

[guest]

Really don't care about medians and statistics by some "expert" Group. What I am saying is that inventory is available right now at these prices, these are actual listings from the MLS. It is not an exception as in this community itself there are 30 units for sale between $160k - 180k. And this is the "asking" price, perhaps there are motivated sellers who will reduce a bit in this market as well?

By Insurance i am guessing you're referring to homeowners? This is the same as renters insurance, there is no difference.

1% in transaction/closing costs is normal, nothing optimistic about it.

Your rebuttal doesn't seem convincing enought.

[admin]

Well, you led off by stating that you didn't think that there was a bubble in the Boston area. Medians and other statistics are precisely how you would go about demonstrating that. The existence of a bubble in the majority of transactions is not mutually exclusive with isolated good deals.

No, homeowners insurance is not the same as renters insurance. Renters insurance covers belongings, whereas homeowners insurance covers the structure and liability.

Realtors charge 6% commission, which is part of the transaction cost both when you buy and when you sell.

- admin

[Boston ITer]

Modest sized metro Boston condos a have a mean around $280-350K, not $170-190K. And in towns like Arlington, $350K gets you very little.

Anything in that territory is price in the late 1990s time frame, not today's ebullient RE so I suspect that there's a problem with either the structure or the building maintenance service agreements.

Now, it could be that the market has dropped out, in some ex-burb condo markets so perhaps it's a good deal (ala 1989-91 condo crash all over again) but I'd do my homework before buying. A friend of mine picked up his unit in Brookline back then for $40K and someone else on the Merrimac River for ~$18K.

[Dorchester grandma]

Rents are too high as well and have been for many years. My apartment at $1100 is considered low for 5 rooms in Dorchester. Landlords can get $1700 for similar size if they rent to section 8 tenants. If my apartment were in more upscale area it might go for $2000. No truly affordable housing in Boston. Many people live with roommates to afford apartments. I rent a room and that has not been easy.

Boston is way overpriced if you buy or rent. If I did not have family and job here or if I were younger, I would leave.

[BK]

The idea that Buying insulates you from Inflation is flawed.

Why do I believe this:

Owners -(or people renting money from a Bank) are fully responsible for repairs, property taxes, Home Owners Insurance, Condo Fees, replacing appliances, snow removal, leaf removal - all of these can increase with inflation.

The Renter - merely has to worry about the inflation impact on their rent and their renters insurance (Renters insurance is approximately 1/5 of the cost of Home Owners Insurance). My Home Owners insurance used to cost me $2000/year and my renters policy is $400.

Prices of Homes and Condos are currently based on values that are artificially high - loose Mortgage requirements and a secondary Mortgage Market that would buy any Mortgage.

The Credit/Mortgage Crisis became public in August 2007 and you are seeing the Mortgage Market become tighter. Citi Bank, Merrill Lynch, Bank of America, Washington Mutual all have seen the price of their stock drop as the Mortgage crisis has become public.

These Condos in Natick will be a much bigger bargain in 12 months and later. I'd bet they will have a hard time giving them away in 18 months from now. Being an owner in a Condo Complex with foreclosures is not a good thing.

[Boston ITer]

[steverino]

You know a board has arrived when it gets its own trolls.

[Guest]

We don't need no stinking Troll


http://en.wikipedia.org/wiki/Stinking_badges
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[Guest]

Honestly,

I think you are all jumping to worst case scenario conclusions. Keep in mind if we are strictly talking about The City of Boston, Brookline, Brighton, and Cambridge, there are still appreciating property values. Now if your talking about suburbs, well then your on your own there, but inner city Boston is still growing.

[admin]