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I bought!

 
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Wed Sep 06, 2006 5:15 pm GMT    Post subject: I bought! Reply with quote

I just bought a house. I have to thank most of the posters here for the information that empowered me in my search and through the negotiations. We were first time buyers so we had a lot at stake. What people told us two years ago at the beginning of our search is quite opposite of what we're told now so the transformation of the market was a bit of an ordeal and again, I appreciate Admin and all the other posters to help me stay ahead of the curve.

This is a very difficult time to buy and sell. I'm told that the seller who ultimately sold to me had a realtor tell them last year that they would get approx. 30 percent more than the amount that we paid. New construction would have cost around this amount, but the house was built in late 90's so it isn't one of those old overpriced junk boxes that will cost a fortune to heat. We're paying .28 percent of our gross income per month on mortgage, real estate taxes, and home insurance so the fundamentals are pretty sound and work for us.

I bought in an up and coming area close to a new commuter rail stop. MCAS results are improving rapidly for the town and it is transforming like Hopkinton did from a farm town to a quality bedroom community.

My advice is to broaden your search to a wider range if you can. Include towns, cities all around your target area to get a feel for the market in surrounding areas. I spent last year looking in one or two towns and neither town was a value town. You may find what we did which is that some towns are so overpriced for what you get and it feels like you're just fishing in the wrong pond... I still wouldn't consider touching anything in those towns. The inventory and time on the market has corrected in these towns but the prices are just beginning to correct and will much further. I think that many houses will drop up to 30 percent. I know this because I compare my house to theirs and just laugh at what they're asking... People look at our house and can't believe it and think we're loaded. This would be a good deal in Virginia.

I would like to see data on how many people receive MLS listings for each town. It would give you a sense of how many lines were in each pond. If you find a town that isn't yet on people’s radar you can have the pick of the liter. Comparable houses two towns away would be about $200k more than what I paid and I can get into downtown Boston just as fast as they can. I mean getting through some areas of Cambridge is like getting out of fly paper and can take as long to get to work as it might from suburbs further out if you can sail in down an open road or commuter rail line.

Broaden your MLS listing notifications to well above and below your "price range" to get a feel of what segments of buyers and sellers are doing all around you. I am incredibly fussy so even with this very big filter only about a dozen or so houses interested me. The house we ended up with was well above our price range when it went on the market. We just spent a bit more time hunting and waiting...

Because you now have about 12 or so houses that you could happily live in, you won't be so disappointed if you don't get one. It's like that saying "Never chase a woman/man or a bus, there's always another one coming..." Then follow to understand the profiles of the buyers, how long the house has been on the market etc. I found out that some open houses were "professionally staged."

In a "buyers" market about 7 of 12 houses have "motivated" sellers. About 3 of 12 are "really motivated" and 1 out of 12 is really really motivated. Find the really, really, really motivated seller. The reason for this is that an unbelievable deal today might just be an average deal 6 months from now. Since we bought about 4 more houses that we had our eye on (not nearly as nice) have dropped closer to what we paid.

We made several offers on this particular house and had a buyer’s representative that was excellent and was on board with our strategy. If a buyer’s agent starts working you instead of the seller, dump them immediately. Wait, I need to rephrase that, they all do, if one starts to really work you dump them. Even our buyer's agent with 20 years experience thought the house would sell for $40k above what we paid. Ignore your buyers agent's advise regarding price and just say "Ok, just make this offer". We had a buyers agent tell us that they didn't feel comfortable making lowball offers so we said goodbye. We told our new one that we were going to play the odds and we made it clear up front that he couldn't be shy about lowballing. He wasn't. In exchange, we did all the leg-work, we went to the open houses drove the neighborhoods and only brought him in for the kill. Our final price was actually lower than a prior offer because the interest rate had gone up steeply during the month of July. You can't just be an internet dude, you need to get your hands dirty, make lots of offers, talk with people and absolutely drive around and go in and out of as many neighborhoods as you can. I called town assessors offices, building inspectors offices, experimented on commuting options etc.

Again, being first time buyers we were able to take advantage of not having to sell a property. We saw a good number of homes come back on the market after they seemed to be under agreement so first time buyers can get a discount to take away a certain amount of risk for sellers.

Anyway, best of luck for everyone and thanks Admin and you all for your research and insight. I hope a year from now I don't feel like a moron, but again, there are many areas I wouldn't come close to touching right now...
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admin
Site Admin


Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston

PostPosted: Fri Sep 08, 2006 8:34 pm GMT    Post subject: Reply with quote

John,

Congratulations. It sounds like you certainly did your due diligence and I hope it works out well for you. I'm glad that you found this site useful along the way.

- admin
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Thu Sep 14, 2006 1:16 pm GMT    Post subject: Blanton's article a piece of a larger fractal? Reply with quote

http://www.boston.com/business/globe/articles/2006/09/14/shifts_in_hub_home_prices_were_all_over_the_map/

If you can get your hands on Kimberly Blanton's hard copy article, it comes with a nice color-coded map which graphically indicates the areas that went up and down.

Two very interesting points are:

1. it’s a total mixed bag

2. The "upscale" neighborhoods took the real beating and the traditionally perceived "bad investment" stigmatized neighborhoods actually got a lift in price.

I never bought that there were the traditional "blue-chip" areas. Rich towns were always good investments. It seems that the real "blue-chip" investments were the "blue-collar" neighborhoods. The new generation of professionals is less willing to overextend for perceived status as the "St. Elmo's Fire" yuppie generation did.

My search was mostly within the southeastern suburbs, and I found a similar pattern to what transpired in the Boston market.

I think that if they put in a commuter rail line down through Stoughton, Taunton, Fall River and New Bedford it will bring cheaper workers into downtown Boston as the cost of living is lower there due to it's poor access to the higher paying jobs found in the city. The vision could fall apart if the monthly rider ship fees go up as proposed.

The reverse of this could be true as well. Think about it, if there is a critical mass of employees commuting towards Boston from these areas and the talent moves further away to follow cheaper housing opportunities, once the train access makes its way to these outlying urban centers, companies may find that it is cheaper to set up shop in these old industrial cities. Instead of getting on the train towards Boston, you head away from it to another smaller urban center. If the talent resides between the two urban centers and the younger talent can only afford the outlying areas, they may be striking distance to an outlying urban center. If these cities rise, it may drain the property values right around Boston. It sounds crazy, but Mattapan did better than the Back Bay in real estate last year. Who would have thought that?

Blanton's article is a piece of a larger fractal of activity in the real estate market.
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kenfeyl



Joined: 21 Apr 2006
Posts: 11

PostPosted: Mon Sep 25, 2006 3:33 pm GMT    Post subject: Reply with quote

john p has brought up an interesting set of points that dovetail with some of what I've been thinking about. Unfortunately, I disagree with his assertion that real estate pricing is completely local. There's not anywhere near enough data in individual neighborhoods, especially for the single-family home sales the article quotes, to draw a meaningful statistical conclusion. Local numbers are always out of whack. With such a small sample size, a single new development -- say, a new condo construction with 12 units -- throws off all those averages.

For a real-world example, check out this line in the August 2006 MAR story:

Quote:
Berkshire County reported the biggest condo median sale price increase - 52.2 percent.


A number of this magnitude is quite obviously the result of a new development skewing the median.

Retail stores face similar problems analyzing their own data, and often use same-store sales figures instead to mute the effect of new stores. I believe movements in same-single-family-home sales would paint a bleaker picture.

After reading many of the documents that admin has so graciously listed and indexed, my belief is that real estate pricing is NOT local. Everything that people think shields certain areas from a decline -- a good location, a good school -- has already been factored into the price. All that's left is the global effect, the up-and-down of the market and perhaps demographic trends in the state.

There are a few exceptions, of course, such as when Harvard first announced plans to build in lower Allston, or when they constructed UC Merced a few years ago, and so on. But these are rare and certainly don't apply to most areas of Greater Boston.

May I ask what city it is that you bought this home?
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Tue Sep 26, 2006 3:10 pm GMT    Post subject: you're right Reply with quote

I quickly reread what I posted and can't locate where I said the market was "completely local". I agree with you regarding the macro economics. If you overlay the graph of a stock price history with a benchmark of S&P 500 or Dow Jones Average you'll more often than not see it generally follow the same trend.

However, imagine the image of a desert that is drying out after a rain. On the surface you see drying out and cracking and in some areas, you can see water. This pulling apart, cracking and mixed wet/dry is the dynamic I see as the market changes state from a sellers market to a buyers market.

What is interesting is when a "macro economic" force influences local markets. For instance, when labor became cheaper down south, the mills in New England lost it economically. If you averaged the price of homes in North Carolina, Virginia and Massachusetts, two would be going up and the other going down. The three averaged together would dilute the impact of the directional change. The real estate industry is very crafty when they interchange national and local statistics. Keep in mind that capitalism migrates. It finds the areas where it can flourish. Now the South needs to deal with China and India. Different locations peak, and valley and continually redefine themselves.

The next directional macro force to affect the Massachusetts real estate market will be the growing Diaspora due to the baby boomers retirement. Some people may find that it is nicer to retire in the Berkshires or North Carolina, Florida than it would be to retire in say Somerville. These outlying areas are striking distances to the peace and quiet and a short ride in to see the grandkids. Mark my word; you will see a debate between retirees who want lower property taxes with younger families that need to have a competitive school system for their kids. Depending on whom gains political control of the town will determine the direction of the property taxes. Look at the range of property taxes between towns to town. You can sometimes find a big variation in neighboring towns. As a side note, check out the tax rate for Hoboken, N.J. I thought I got it wrong but it seems that they pay $45.28 per thousand in property taxes.

Lastly, it does come down to the local disposition of buyers and sellers. Let's say there are 8 sellers and 5 buyers in a particular town within a certain price range. It's like musical chairs, 3 seats will remain empty. During the peak spring selling season, I would see the same faces walking through during the open houses. Now if there were a few "gems" in the 8 houses for sale, the three most zealous buyers of the five would snatch them up. The last two buyers would have the standoff with the remaining 5 sellers. This is where the price declines really happen. Further, if a "gem" was way overpriced to begin with and they wait to long to drop their price, they may miss the big wave of buyers in the spring season and then the remaining two buyers get to choose from the houses that seemed out of reach that dropped into their wheelhouse. It's funny; we missed out on houses that aren't as nice as ours because the overzealous buyers snatched them up early on in the season. When the number of buyers dwindled down, and the price drops from the supply above our range came down into our range, we had no competition from other buyers. In this mixed market, it is more risky to accept an offer for someone that needs to sell their property. If it takes 6 months for your buyer to sell their house, who pays for six months of two mortgages and property taxes? The new buyer can discount like 3-4 months of mortgage and property taxes and still be more attractive. So again, you need to understand the specific local profiles of buyers and sellers. As soon as house prices tick upward, you might get a flood of pent up buyers. I don't see this in some areas, but other value towns might see this.

Other more meso forces to the market have to do with oil prices. Older homes are getting slammed. Did you know that you can call a gas company and give them an address and get the high and low monthly costs? Houses that don't have an energy efficient building envelope can hemorrhage money. Now you have to admit that houses within the 128 belt were built in a certain period and their condition is hit or miss. Some people stayed up with the maintenance and others different. If you're buying a home in Arizona, most of the houses are in the same condition so the prices may not fluxuate. If you buy an old junk box that needs like $50-100k in immediate repairs and every other system of the house is suspect that might scare away a new buyer that doesn't have those types of cash reserves on hand. It's a mixed bag from house to house because some people maintained their homes and others didn't keep up. Now if one of these older homes is a starter home, it may financially lock in a young family because they will get buried with repairs and if the market drops and they need to bring money to the closing in their trade-up, it may be tough...

The last indirect macro/meso force that is hurting us locally (that I have time to mention) relates to the cost of college tuition. Because this region was one of the first to reinvent itself, we have more colleges. We attract students from all over the country and world. Many come from lower cost of living areas. These students come, get educated and go back to where they grew up. Because our native students have to compete for slots with out of region students, it drives the price up. Our State did not prepare itself for providing enough capacity for the demand of the echo-boom. Compare state tuition costs in say Kentucky. People selling their homes need to make a big profit just to cover their retirement costs and to pay for their kid's tuition. It is really a generational tug-o-war between new families starting out and those retiring. It needs to get back to where it is fairer for those starting out.
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BillK
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PostPosted: Wed Sep 27, 2006 1:57 pm GMT    Post subject: Banks and Real Estate Cycles Reply with quote

Your discussion completely ignores the role of Banks. Every down cycle in Real Estate leads to a down cycle for Banks. This leads to Bank making fewer loans (remember, Banks only make Mortgage loans to charge fees and to ultimately sell the loan). The Banks create the customers for the Real Estate Industry by creating Mortgages.

God help anyone trying to sell their home during a Market down cycle - it can take 5-9 years for the good times to return.
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