bostonbubble.com

[JCK]

Interestingly, the asking price for homes in the Boston area is up 3.2% over a year ago.

http://www.housingtracker.net/askingprices/Massachusetts/Boston-Cambridge-Quincy/

Perhaps foreclosure sales are dragging down the median prices, but non-foreclosure sales are tracking differently? (Do MAR numbers include foreclosure sales or not?)

Or maybe the only homes left on the market are those that have been grossly overpriced?

[admin]

[JCK]

Hmmmmm. Looking at The Warren Group website.

Median condo price in Cambridge over the last five years:

2008 $408k
2007 $407k
2006 $415k
2005 $419k
2004 $375k

Change from 2007 +0.24%
Change from peak - 2.6%

So prices here aren't exactly collapsing.

Let's look at Brookline over the same period:

2008 $443k
2007 $447k
2006 $450k
2005 $465k
2004 $429k

Change from 2007 -0.9%
Change from peak -4.7%

Very similar pattern; no collapse here either.

How about SFHs in Newton?

2008 $769k
2007 $713k
2006 $653k
2005 $813k
2004 $743k

Change from 2007 +7.9%
Change from peak -5.4%

Some downward movement from peak, but not over the last year (although sales numbers are WAY down...)

or SFHs in Belmont?

2008 $685k
2007 $682k
2006 $750k
2005 $720k
2004 $680k

Change from 2007 +0.4%
Change from peak -8.7%

Again, no movement from a year ago, and some movement from peak. Certainly not -14% YOY.

So where might the drops be occurring?

Poorer urban areas?

East Boston

2008 $215k
2007 $292k
2006 $327k
2005 $330k
2004 $280k

Change from 2007 -26%
Change from peak -35%

Hmmmmm...

More distant (outside of Route 128) suburbs, even nice ones?

Sudbury

2008 $592k
2007 $656k
2006 $654k
2005 $737k
2004 $645k

Change from 2007 -10%
Change from peak -20%

Well, I've hit my limit for this sort of post, but I think it demonstrates that the loses are not evenly distributed across the Boston area. Some parts are way down, others simply are not.

[showgunx]

JCK,
How I look at Warren's data is, shitty towns' price had start dropping, yet the nicer areas are still holding its price. This means the worst time is yet to come. Boston's price will be bottoming when newton and belmont's price drop by double digit. Hold tigh, we are in the eye of the storm right now.

[JCK]

Perhaps. But if you go back to the 1990s bust, you'll see that towns like Newton dropped by a smaller amount than in less desirable areas.

I think people in these parts are still going to be unhappy when the $700k home in Newton drops to $600k, especially if it's coupled with a rise in mortgage rates (as some here are hoping).

[john p]

I will try to keep this brief

Think about thermodynamics. Think about how some materials like metal conduct heat, while you use other materials like stone or brick to line a fireplace because they don't absorb heat as much.

Now think about how a bad economy can hurt a society. For those that are living month to month, a layoff can heat up the situation and create an economic meltdown. Others that have wealth are insulated / have fireprotection from the heat and don't melt down. The poorer towns get heated up pretty quickly because they don't have the financial insulation to withstand the fire.

The problem is that the ownership rich rely on consumers to buy things because the companies that they invest in need to grow. If nobody has any money and nobody consumes, productivity slows down and even the ownership rich slow down.

Right now nobody is talking about it but there will be a tug of war between inflation and deflation. Younger people who are in debt from college or a home purchase but don't have much wealth want inflation because their debts will be worth less and their salaries will grow with inflation. The rich don't want inflation because the money that is owed to them will be worth less. I think we are in dire need of wage inflation to get things to balance, but that is difficult with foreign labor.

I think the medium, the US Dollar will make the temperature change and deform to find balance. I believe that the US Dollar functions as the "Specialist" in an equities exchange. The US Dollar is the mercury in a thermometer. It reads one thing when it is a national economy and it goes down when it is reading a global economy. We had a nice insulated national economy, but when we globalized, it was like knocking one of the walls down and the temperature dropped. I belive that even those that feel like they are in a safe town might lose because the wealth they have could vaporize when the medium, the US Dollar devalues when they continue to print money. If the rich start to invest overseas, they'll find out again, that without US consumption, the whole world gets hurt.

[JCK]

john,

I agree with much of what you're saying. My only point was that people who are looking in particular towns may be wondering where the 14% drop is coming from, because it's not happening in Newton, for example.

Inflation will help those with debt, but it's going to be mixed bag for home acquisition; rates will rise and this will affect affordability. Those who've saved for a down payment will find their cash to be worth less.

I think time is the answer, but I'd be very frustrated right now if I had decided not buy in, say, 2003 in a town like Newton, believing prices would come down within a couple years. But here we are 5-6 years later, prices are still high, and if you put your down payment fund into the stock market, it's probably worth 1/2 of what it was 12 months ago...

Not good times for that person.

[balor123]

I haven't been waiting but I've been working since 2002 and since then it seems like owning has become more difficult since then. Whether or not inflation hurts those with downpayments depends on what kind of interest rate they are getting on the downpayment. I think that they should be able to keep up with it or close to it so if housing prices stagnate with inflation then inflation is a good thing. Plus - and this is the best part - if you lock in a house when rates are high and prices are low you can refinance later when rates are low without having to pay for a high home price. There are a lot of people out there who were able to accomplish this over the past decade and I think that this is part of the reason that they aren't selling. They bought houses that were probably expensive at the time for them but more affordable than now and a combination of refinancing and wage increases have made housing very cheap for them.

[stillRenting]

The important thing to notice is that towns whose prices are not seeing drastic drops in prices are still seeing huge drops in number of sales. All this means is that there are artificial factors keeping these prices stable but the effect still hurting the real estate market. This can only last so long as even towns like Belmont do not have their own private federal banking system. This hurt will eventually bring prices down; there is no way around it.

I also think many of these towns are full of Alt-A loans where the bulk of them have yet to have their rates reset (the 60 minutes piece). This is because the subprime loans allowed many low income renters to become home owners but the Alt-A loans allowed many medium income home owners to move into "rich" towns. Either way, they still can't really afford the houses that they purchased.

The forces that are taking down the other towns will reach even the wealthiest towns, its just a matter of time. It's also making me rethink my 2009 prediction to be much lower.

[john p]

Sometimes when you brew beer it takes a certain temperature for enzymes to break certain proteins down. It is kind of like the specific heat of a material.

http://www.allaboutbeer.com/homebrew/proteins.html

http://www.howtobrew.com/section3/chapter14-4.html

[stillRenting]

@John p. really now?

...I give up

@Admin I love the site and its concept, but you got a really bad Juggernaut destroying your site.

I'm out.

[BelmontRenter]

Such tough times . . .

I sold a house out in the far western suburbs . . . bit the bullet and accepted what I thought at the time was a seriously awful lowball offer. But two months later, I'm sure glad I've got the cash in the bank.

I moved in with the s.o., and we're in a too-small place in Belmont. We want to stay pretty much in the Arlington/Belmont/Newton corridor, with Belmont really being the no. 1 choice.

Yes, prices are not down MUCH here in the lower priced single family homes (under $850k), and inventory is SLIM.

But even if something somewhat reasonable comes on the market soon, it's hard to commit in these "troubled times." Prices may yet come down here, and it seems that inventory has to be better in the coming months.

[Boston ITer]

John, I like the tone of many of your postings but I think you've overdone it on the whole Obama as a national reincarnation of Deval Patrick & MA glib politics.

True, in many ways, it parallels my underlying anxiety of America (vis-a-vis Mass) losing its R&D (and hence, the engine of its future growth) but for the most part, examples of my paranoia are all over the place starting with the decline of DEC and HP, even before the NASDAQ 5K implosion. I feel that many of your anxieties revolve more around our current governor, than the nation as a whole.

[john p]

Guys, I don't enjoy talking about politics, I would like to talk about housing, but the fact of the matter is that politicans are altering the housing market.

Do any of you actually think that politicans are not affecting this market?

Deval Patrick told the voters that he would lower property taxes. When people consider buying a home, they consider their monthly nut, and if they factor in lower property taxes they will get themselves into trouble if the politican is just saying it to get elected and they believe him.

This thread is based on Predictions right? I am hearing rumors of them lowering the interest rates to 4.5% for new buyers shortly to stimulate the economy. Why would anyone buy now if they could save a percentage point in the near future? The politicans are controlling this decision, they are dangling the idea out there among others and everyone is in a complete holding pattern until we find out what these politicans are going to do.

The future of the housing market depends on what the politicans choose to do. I don't think there ever was a time in American History where this is more true than right now.

I am trying to help, I am trying to warn people to guard against believing Obama's promises as if he is a Messiah, and be hopeful that he can deliver something, but guard against the reality that he may in fact just be a politican who made a lot of promises to get elected like Deval Patrick.

If you talk to anyone in the financial market they will tell you that we are dealing with the weight of negative sentiment, psychology. We need to discuss the mechanics of psychology in order to understand this reality. Do any of you think that psycology is not part of this equation?

Obama is one of the best speakers in recent history. His speech at the DNC in 2004 launched his career on the big stage. Understanding the mechanics of his oratory will empower you. He excites people and gets them charged up almost to an irrational state, kind of like how people got caught up in the buying frenzy that created this bubble. His affect on the crowds not only unveil his power, but the crowd's weakness to believe whole heartedly what he's saying despite a track record. Looking at this understanding the vulnerability as sort of a diagnostic into the psyche of the American People will help you understand the breath and depth of the possible exposure this bubble menality, or the amouht of people that base decisions on emotion. This is meant to empower you to this insight, if it is disturbing to you that I am mentioning that people follow Obama like a cult, you ought to first consider if what I am saying isn't true.

Most importantly, Obama is going to give an Inaguration Speech right? He needs people to be hopeful to stimulate the economy, kind of like "The only thing we need to fear is fear itself..." The other responsible tact to take is to ask people to behave more responsibly, I am pointing out that how likely is that if he offered tax credits to those who don't pay any income taxes?

[BelmontRenter]

I'm a prime example. I've owned many homes in my adult life, but I've never doubted, until now, that home ownership is a no-brainer. I'm sure there are many many people like me, sitting on the sidelines with cash in the bank.

Right now, holding the cash feels better than taking on a $4000-$5000 mortgage payment. I've not been able to talk myself out of that (yet).