bostonbubble.com

[barryshaft]

There was an article in business week stating "The statewide median home price last month was $383,000, down about 17 percent from a year earlier and 5 percent from December, according to DataQuick Information Systems. The statewide median price peaked last spring at $484,000."

Now I know this is no SoCal but what is it that is keeping this market afloat?

If you look at the Fed's Economic indicators report, wage growth is nearly stagnant.

We have 100,000 less jobs in Mass than we did in 2001. Lifescience/healthcare have helped to stem that flow but during a recent survey 78% of lifescience business have considered moving out of the state due to high costs.

There has been a signifigant outflow of skilled workers in Mass. and population as a whole.

I am not debating the good in Mass... i think it is a great place to live... but there are a lot of underlying financial reasons for not coming.

I am sure this is not news to anyone on this forum but i have been thinking the sky is falling for the last 3 years and although we are starting to see a significant correction it is not like the numbers in CA... where they have nice weather and growing job numbers.

[BK]

The Median Price is dragged up or kept level by the increasing number of sales on the High end of the Market. 2007 was a very good year for any one working in Finance, Healthcare, or BioTech.

Remember, the numbers we see published are often the Number from the MLS system and more sales are happening outside of the MLS system.

Keep the faith. The Credit Crisis began in August and look at the spike in foreclosures. The next 6 months should tell the tale of a market headed lower. Sellers will finally realize that a Credit Crisis means there are fewer people qualifying for a Home Mortgage - the ones that due qualify are qualifying for smaller loans than they would have - prices are headed lower.

Real Estate markets are sticky and the price action can take a number of months to hit.

Boston is a great area - but, dropping number of jobs and increasing inflation DOES NOT equlal Higher Prices.

[It Is Balloon !!]

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Post subject: What is keeping the market afloat

answer: Hot Air

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[JCK]

A couple comments.

1. To expand on BK's point, median price tells you very little. If the composition of housing being sold has changed drastically since, say, 2005, then you're comparing apple-to-oranges. If, for example, only the most desirable homes are selling today, whereas any shack was selling in 2005, the median price might not reflect what's actually happening on the ground.

2. "Massachusetts" isn't really a single market. You have Boston metro, Cape Cop, Southeastern Mass, Central Mass (Worcester), Central Mass (Springfield), and Western Mass. It might be worth looking more closely at your desired area. I am, for example, not familiar with the housing market in western part of the state. If those areas escaped the bubble, then a statewide median price might not be all that useful as a guide, assuming you're interested in Boston metro properties.

My suggestion would be to go sites like Zillow.com or the www.masslandrecords.com, where you can look at sales of actual homes in different areas. If you're looking to buy a house in a particular town, Zillow will let you compare sales of 3 BR houses over time in that town or ZIP code.

3. I also wouldn't compare job numbers to 2001. The dot-com bubble created a jobs bubble. So referencing the peak of that bubble probably isn't a good starting point for any meaningful analysis.

And it appears at least some job areas are doing well.

http://www.boston.com/realestate/news/articles/2008/02/22/office_rents_reach_dizzying_heights


4. I think some (not all) of the outflow issues are simply due to the fact that there are so many skilled workers in Mass to begin with. There is always talk about young people leaving, which is definitely true, but not everyone going to school or starting their first job in Boston is going to stay here their whole life.

5. Re wages: I'd be curious to see how this breaks down. Again medians can be deceptive if the composition of the median is changing. I don't have any data either way, but I wouldn't rely on it too heavily without knowing more about the components.

Second, I think the relevant question is not "what is the median income in Mass?" but rather "what is the median income of the other people looking to buy a home in town [x] and adjacent/similar towns?" because those people are your competition. If you're, say, making $80k/yr, you're not in the same market as someone making $35k, nor are you in the same market as someone making $350k. So the statewide median income is too crude an instrument to draw any meaningful conclusions about where housing prices may go in your slice of the market.

And even on a town-by-town basis, median income may not be that helpful. In a town with an older, retired population, median income may be relatively lower, but that doesn't mean housing prices will necessarily follow their incomes down if those people are cash-rich.

Similarly in areas with students, I don't think income is going to tell you all that much. You may be competing with people who want to be landlords to groups of four students paying a lot of money who are racking up thousands in debt. However, the median income number will include the students, who are probably making almost nothing.

Or you may be competing with people who have owned homes for 10+ years. Many of those people will have hundreds of thousands in equity and, even if their income isn't higher than yours, will be able to buy a lot more house.

6. There are more good high paying jobs in Boston than in many other cities. Yes, housing costs are a bear, and some people could buy a bigger house by moving to Indianapolis, but many life sciences, tech, legal , educational, financial, architecture jobs simply don't exist in the quality or quantity in many other places. So it's not just a question of "Housing prices are high in Boston," but rather "If I move elsewhere, what are the alternatives?" The answer to the second question will be different for everyone.

In my case, my wife and I both have jobs that likely require living in a high cost-of-living area. I think regard, I think there are many "two-body problems" where you need to live in an area where two people can have good jobs. That's simply harder to in certain areas and probably further drives up prices in places like Boston. john p has some posts about the effects of dual-incomes on housing prices that are worth a look.

Another anecdote. I have an engineer friend, who tells me that, in his field, jobs are either in the Boston area or on the west coast. So his ability to take advantage of lower cost of living areas is also limited.

7. My suggestion is to do your own due diligence and be "actively passive," i.e., know what's going on, but don't act unless you can find a good deal. Figure out how much you can spend/afford on a house, what you're willing to pay for, what you're not, identify some areas or towns that align with your preferences and prices, and keep an eye on properties in those areas.

I think BK is right that we will likely see addition reductions in price, but the truth is that nobody knows. But the pool of buyers is a lot more smaller than it was three years ago, and you will have a lot more leverage will sellers today. Your chances of negotiating a good deal with a motivated seller are good.

[BK]

JCJ,

Great Post.

But, I disagree when you say No One Knows if Prices will continue to decline.

This Credit Crisis is started in August 2007 and it is at least as severe as the s&L crisis (the major differnce being that securitization moved the risk from the Banks to Pensions funds,Internationally, everywhere).

Do you know anyone who has tried to get a business loan in the last three months? They are very hard if not impossible to get - the restrictions in credit will reduce incomes and create more challenges for the houisng market.

Most people fail to understand how our Fractional reserve Banking system works. When lots of loans are being granted the Money Supply expand quickly. The $200K that I give you to buy a home ends up in a Bank, then 80% of the $200K on deposit can be used as a loan approximately 8 times (it sounds crazy - but, thats how a fractional reserve banking system works). Imagine how quickly the Money supply was increasing during the Housing Boom.

Read up on the fractional reserve Banking system - then you'll understand what happens when credit begins to contract. This is why the Federal Reserve has been cutting interest rates - they are worried about keeping Banks solvent. Bernake knows the Fed Funds rate won't impact the regular folks.

Prices are going lower - much lower.

[JCK]

BK,

I'm not disagreeing that we're going to see future declines, I'm just questioning how much. If you find a good fit today in terms of price, place, location, etc., I don't think buying isn't a terrible move. The caveat is that the buyer should do his homework before putting in any offers.

If you have good credit and some money, you can still get loans. I refinanced recently, and lenders were more than happy to negotiate on prices etc. So I don't think residential credit is gone, but the bar has gotten higher and getting those loans has gotten more expensive.

I'm not ready to conclude that massive declines are in the works. Personally, I think large future declines are contingent on other factors, e.g., job losses, recession. IMO, we're simply not there yet.

[Guest]

Real Estate and Biased opinions

We agree and We disagree.

I agree Residential Financing is still alive - its not dead. Let's remember banks only make money when they Lend money (the Banks have to close if they aren't lending money to pay their bills).

You own a home so your bias is to believe that the Down side will not be painful - (its human nature). I hope you are right - because many friends and family will be hurt financially from a dramatic downturn.

My family owned a home - we sold when it was easy to sell and are waiting out the downturn as Renters. My Bias is that I expect Real Estate to go lower and lower.
I support my Bias with an understanding of how the Economy and the Banking system works.

I expect the Federal Reserve to keep interest rates low and expand the money supply - this will lead to inflation.

Inflation will raise prices of food, oil, and most commodities (the things humans have to have to live).

Inflation will reduce Money for consumers - there will be less money to save for a home.

Banks will become more and more restrictive about who they lend money to for Real Estate. Fewer buyers and Buyers with less cash will lead to lower prices.

Best Regards.

[barryshaft]

Thanks for the response:

The data i provided was for CA Statewide-- regardless of pockets, statewide we have not seen this type of drop-- yet


As for Point 3: Please read the following-- regardless of that being a highpoint Mass has done terrible in comparison with the rest of the country.


Massachusetts Ranks 49th in Job Growth

According to a report from Massachusetts Institute for a New Commonwealth (MassINC) shows state losing share of the country's payroll jobs.

“Despite recent gains in its biotech sector, Massachusetts ranked 49th in job creation over the past six years and experienced a loss in its share of the nation's payroll jobs. While trailing in job creation, Massachusetts was among the leading states in productivity, ranking 7th in the nation and also increasing its output per worker faster than the nation, according to Mass Jobs: Meeting the Challenges of a Shifting Economy, a report released today by the Massachusetts Institute for a New Commonwealth (MassINC) and the Center for Labor Market Studies at Northeastern University.”

Massachusetts trailed its 10 economic competitor states and each of the New England states in job creation in recent years and, as of July 2007, is the only one of those states that has not recovered all of its 2001 jobs. (New York state essentially broke even in July 2007.) Massachusetts is still 100,000 jobs below the peak employment level and ranked next to last in job creation between 2001 and 2006, besting only Michigan.

While Massachusetts accounted for only 2.5 percent of jobs in the United States at the start of the recession, it absorbed 7.3 percent of the net job losses from early 2001 through the beginning of the national jobs recovery in the late summer of 2003. The state's share of the nation's jobs fell from 2.53% to 2.38% between 2001 and 2006. The state's share of the nation's high-tech jobs dropped from 4.2% in 2000 to 3.9% in 2005, indicating other states are adding those jobs faster than Massachusetts.

From skill-works.org
During 2004,we estimate that approximately 136,000 workers commuted into Massachusetts from New Hampshire and Rhode Island for their jobs. Far more workers commute into Massachusetts fro their jobs from other New England states than leave the state daily to work in other states in the region.

I have the wage data at home-- I will put that together later today

Also as it relates to point 6. 76% of companies are looking at other states to relocate, granted they may be here now-- but for how long

Thanks again and I am doing my due diligence-- and my post was generally out of frustration.. wanted to see what others thought

[john p]

JCK:

You are amped up lately (looking at the big mosaic of issues) which is great.

I guess I'm in a holding pattern due to the weather (it's a slow period for real estate and my interest level seems to follow the real estate activity).

Are you seeing anything now that has piqued your interest? I'm wondering if I'm missing anything.

I am thinking of of course, how interest rates dropped significantly and then shot back up. I'm thinking about how on the one hand the FED can't lower their rates and have that directly lead to mortgage rates lowering because if you flood the economy with money it will dillute the currency and devalue the dollar. Dilluting the dollar creates an inflation effect because if someone lent you $500k today, what would that be worth when they get their money back? He is kind of frozen because on the one hand to stave off a recession he needs to lower rates and if he does that too much he creates inflation and the medicine of lower rates will never come.

I think we have real estate cycles and political cycles hitting this year. Paulson and Bush don't want to be known as the worst ever so they want to stop the bleeding. The real estate market needs to stop bleeding so the rates need to lower if prices can catch any wind this Spring season.

I am sitting back a bit passively almost in disbelief, surreal because I can't believe how irresponsible everybody is, the President, the FED, the presidential candidates, irresponsible lenders, buyers etc.

I heard Barack Obama taking shots at McCain's comment about not being an expert in the Economy. I mean isn't it responsible to admit your weaknesses and then bring in competent people to responsibly field the team? I mean Barack Obama taking shots at anyone regarding exerience is so out of line. What is so funny is that the way any young politician makes it to Washington is to use the same exact lines he is using. You say that Washington is corrupt, the place where good ideas die, you say status quo blah blah blah. It is the only way to beat someone with more experience, you argue for change. Well guess what, if you get these loud mouthes castigating Washington, and they used this trashing of Washington to bludgeon their way through the door, how well will Washington receive them. I mean his complaint is that people aren't playing nicely in the sandbox and he's trashing everyone in the sandbox; how much participation will he get by trashing everyone first? He trashes the status quo but takes endorsements from Ted Kennedy. How foolish are people to buy this argument? I mean he is running on the status quo's machinery. He is trying to get all of these existing political machines to endorse him. It's like the more things change the more they stay the same.

I think being into the housing market and being from Massachusetts and seeing Deval Patrick go from branding himself as an aspirational leader and invoking MLK's words only to turn around and be a lobbyist for the casino industry which prey on the least of our bretheren is disgusting. I mean housing is screwed up because of lack of responsibility, people not doing their homework and being bullshitted. Responsibility needs to be valued. Giving out a stimulus package is bread and circus. To not give it to those that have had a direct hit by the housing bubble is worse. It is rewarding irresponsible behavior. Why I liked MLK was because he put himself on the line. When he said those words he could have been hanged. In fact, he was shot for his words. His words meant something because they were on the bleeding edge. Deval Patrick and Barack Obama don't have callouses on either side of their hands, they are lightweights. MLK put himself on the line for his people. His people were all people. MLK like Rosa Parks put themselves out there. Obama is like cashing in on MLK, he's soaking in all the glory for MLK and JFK. Well JFK was assasinated because he too put himself out there for the rest of us. Obama votes "Present". He plays it safe, he doesn't go to the mat for anyone. At least Hillary tried to get health care for everyone. She got the crap kicked out of her for fighting for someone. He's such a lightweight that he's saying that she's unlikeable and not to vote for her. The people that say she's unlikeable are the insurance companies. In order to change things, you will face resistance and people in power will disparage and malign you. Our best leaders who put themselves out there subject themselves to personal attacks. Barack Obama has never been attacked because he has never fought for anything or anyone. He votes "Present" so he doesn't get into trouble. Barack Obama's vote against the War, please, look at his district. If he was from Virginia Beach and he made that vote, I'd respect it much more. If he thought the War was wrong, why did he vote again and again to fund the War? I mean they stopped Vietnam by not funding it. It is just so wrong that people who are lightweights brand themselves as heros who were taken from us, those that put themselves on the line for us. It is wrong that we can't tell the difference....

[Boston ITer]

Honestly folks, despite being a native, I'd be out of here as soon as my job goes.

Really, Mass is in a downturn like never before in modern "hi-tech" history. We really haven't had a complete implosion, in both our technological and corporate HQ prowesses, like we have today. I mean the whole biotech (plus bioinformatics) growth (plus recent bubble) was from 1992 till 2004; really, there was more authentic biopharma development before the whole coagulation around Kendall Sq, circa 2002, to siphon off the Whitehead/MITers' knowledge base. So effectively, when we hear about 'em wanting to leave for greener pastures, what we're really hearing is that they're gotten all the IP that they can from the Harvards and the MITs of the region, at the current critical mass of support staff. The main development and production work can go elsewhere as it did for the software and hardware firms in the locale.

[SamChady]

When I see the MASSIVE investment that Genzyme & Biogen have made in Kendall Square, I find it hard to believe that they'd be leaving anytime soon.

[Boston ITer]

Well Sam, here's how it works...

Look at Rte 93 in Andover, the Wyeth facility. During the early 90s that was a single building with a few hundred support staff for R&D. Within ten years, that place had grown into a mini-city. Likewise, on the 495/95 routes, there were similar places for adjunct industries like Millipore and Alpha-Beta. Biotech was a huge juggernaut during the prior decade, perhaps a bit smaller than Silicon Valley (with Cisco, Genentech, and friends) but for the scale of eastern Mass, it was huge.

Now, contrast that immense growth during the 90s, where staff, specialized and general, were added at high volume for product development and production. Since '02, however, this industry had realized something, along with their IT buddies, "Hey, the only thing we need from Boston is Harvard-MIT/Whitehead and the medical centers". That's when Kendall Sq took off because it's the MIT tech breeder of the area. In contrast, the rest of eastern Mass was downsizing which included adjunct firms like Boston Scientific, Millipore, etc. So what's happening now is that Kendall Sq has reached critical mass, the key faculty members and labs have their corporate sugar daddies and the next step is to setup cheaper fabrication/development centers in other parts of the country and abroad.

[guest]

how drastically can and will a recession target re numbers, with our last obviously it did nothing, but this looks like it will be much larger (87-89)

also jobs numbers can't help MA

"U.S. employers unexpectedly cut 85,000 jobs in the first two months of the year, the most in nearly five years, the Labor Department said March 7. The job losses, falling retail sales and weak manufacturing data last month prompted economists to raise their bets that the economy is in a recession."

[admin]