bostonbubble.com

[john p]

We really do have this economical ecosystem; in a way it may be good to have a new supply of housing for the ultra rich. Who do you think will end up with some of that money

In order to find my cat Vinnie-boy, you have to look for where the mice and birds are. My bulldog Daisy Louise Marie watches Vinnie-boy and I watch Daisy Louise Marie. My little wife watches me while she makes her honey-do lists. She's the king of the jungle unfortunately. Sometimes you get too many mice, cats, girl to guy ratio at the bars etc. In order to hunt for something, you need to know what your hunting hunts and how to find them. One year we had tons of gypsy-moths. I don't know what the hell those little f-kers eat, har, har, har.

The two big nomads in our mix today are the sanctuary investors and the "explorers".

The sanctuary investors might be foreigners who might need to get the hell out of dodge if their home is getting blown up or if their currency melts away, or if their governments appropriate their property etc. Rich people who didn't want their wealth to evaporate in equities, etc. Condos for rich college kids sort of fit this category too.

The explorers are those who are the best of the best that want to go and work where the action is. These explorers want to feel like rock stars because they start to realize that they are talented so being stuck in a crappy condo or renting is a bit frustrating, especially if they can live large in another area.

Boston is a place that has both wealthy and the explorers. It is a good thing to have both money and talent. Most places have neither. So let the rich live in these big places sitting on their bidets sipping on $45,000 bottles of wine. We should have a nice place for these folks, plenty of room for them. As much as I resent the wealthy cough-because I don't have-cough I do think that these big developments are part of the solution and not part of the problem. It actually creates more housing stock and that’s one less rich guy you need to bid against if the unit was never built.

The explorers are another thing. Too many explorers and it throws off the market (decreases the demand on the service). Too little and you can't be competitive. We need to adapt and find a place for these future stars. 2014 which is when the first big wave of retirees will be moving is only 7 years away. For a young family, they should keep this time period in their financial plan. It isn't a super long time; you'll get your reward. Right now it is about deal making some will get great deals and some will pay market rate. Even if you don't win in this chapter, I think the younger generation will be winners in the next one. When I was a young guy I was sitting eating in a "Fridays" thinking "there must be a better way", so I looked over at all the signs, lights, and kids with suspenders and buttons. I remember pointing out one pendant light and saying "That one right there is really cool". One of the managers at the place said "That's a Tiffany's, the only one here". If you can find the gem in what you do, you will get your price eventually and keep your god dam ass here in Boston.

And for the greedy older folks in the "Me" generation, First, you want shining stars in your community because you will get higher taxes when your asses are retired and are not paying income taxes. Lastly, I will use a quote that my brother tells my parents "We will pick your nursing home".

[Same Guest]

Unfortunately, I do not have a foothold on the housing pyramid from 5 years ago, having arrived in Boston from India less than 2 years ago. Boston is quite nice, very charming if I may add. But, after the housing price sticker shock that the tech firm I work for conveniently forgot to tell me about, I spent some time searching for a website like this. I have been amazed at the no-spin snippets of data that I find here, it has definitely put a sobering perspective on the enormity of the run-up in prices since 2001.

Though chastened, I can still try and stretch for a good deal if there is a
possibility of prices falling 25% or so, and then stabilizing by the end of the year. Throw in a rate-cut or two from the pyramid's partner-in-crime Federal Reserve, and things might look downright cheery. I am mostly interested in the Boston/Cambridge upscale areas. After all, you only live once, so might as well live in the best place possible. I will continue to monitor this website for updated information for the rest of this year. If things do not change much, or I am unable to start my own company here this year, I will probably be adding to the statistic on the exodus of young professionals out of Mass.

[parsec]

Here's some info I took from a Boston broker's website. The data was pulled from the MLS for the city of Boston.

The following data compares the Boston real estate market of April 6, 2007, with a year ago, April 15, 2006 (today’s numbers are first, a year ago’s in parentheses).

Total # of condos for sale in the city of Boston: 2,332 (2,992)
Average # of days on market: 124 (104)

Median price of all condos for sale in the city of Boston: $389,900 ($389,000)
Average price of all condos for sale in the city of Boston: $596,173 ($558,758)

Number of condos sold (closed) over past 30 days: 352 (320)
Median sales price, last 30 days: $355,000 ($354,000)
Average sales price, last 30 days: $509,905 ($459,660)
Average days on market: 129 (99)
Ratio, closing (sales) price to original (list) price: 94% (93%)

Number of properties going under agreement, last 30 days: 494 (497)

So overall, it doesn't look like the market has collapsed at all in Boston, at least in terms of pricing. The average sales price has gone up due to the large number of new developments that have sprung up recently, but the median price is holding steady.

[Condo]

http://www.boston.com/business/articles/2007/04/14/condo_prices_in_the_city_leap_7/?p1=MEWell_Pos2

Quick data ....

Closed Downtown Market Condo Sales - Between Jan 1 and March 31

2005 2007*

Transactions 784 760
Absorption $459,265,927 $512,217,758
Average $586,547 $673,971
Median $455,550 $489,800

*2007 numbers to be revised upwards.

[john p]

Although I have an open mind about the seemingly odd scenario that condos went up while suburban residential went down, I am concerned that the Globe is considering this Otis and Ahearn as a viable non-biased group to report objective information.

They are realtors and do marketing for real estate. Don't you think that they might want to put a spin on things? Don't you think that this group's stock just went up after being published a few times in the Globe? Did they get free marketing out of this coverage? Who first contacted who, the Globe or Otis and Ahearn? What real value did they offer? If you look at the disclaimer on the bottom of their report you can see that they are essentially drawing information from other sources like MLS "deemed to be reliable but are subject to errors and omissions". This is what I call a pseudo professional, someone that poses as professional but doesn't have to stand behind something. Aren't these folks the ones that help create this whole problem? I wonder why the Globe couldn't have seen through this and just reported on MLS's data themselves. If someone reports on someone elses's report what value do they bring? Otis and Ahearn put it in a spreadsheet format so they get this sort of exposure. So with the Globe, do we then assume "deemed to be reliable but are subject to errors and omissions?"

The writer of this Globe article has a lot of credibility in my book so I hope that these real estate marketers didn't take her for a ride. People who don't have crediblity often market to those that do. I think that what I have learned about Boston's market has a lot to do with Kimberly Blanton's article last year where she had a color coded map of neighborhood showing that it was a mixed bag. I think that that begs the question that the next level of research ought to be more surgical and price point or neighborhood specific. Colin Powell let others trade on his credibility and it ruined his career.

read the disclaimer on the bottom left:

http://www.otisahearn.com/marketstudies/marketreport_2007_fiveweeks.pdf

free advertisment?:

http://www.boston.com/news/globe/magazine/articles/2007/03/25/the_manhattanization_of_boston/

Is this newsworthy, sure, did they give them a bit of a plug, maybe.

Again, my concern with that place is the HVAC system, it seems to breathe air from two alley-ways on either side. I'm not sure if they recirculate a percentage of the air (which would be gross) or if it is 100 percent fresh air. So when they are sniffing before they drink their $45,000 bottle of wine, they might be getting a tiny particle of the air of the neighbor on his/her bidet. When you look at these big residential buildings look for the louvers on them, which are the little metal "gills". If they are in an alleyway, it's not ideal. Staying in a hotel with air like that is one thing, but living their permanently is another. I'd like to be able to open a window and get fresh air in anytime at my home. Personal thing, I know.

Condo, although I am very skeptical of the source because they have a financial interest to pump up people's opinion of the market, you were the first to offer us this information and for that your stock has risen in my book.

Now, we need to explain what on earth created this weird scenario. Honestly, do you think any big projects that just went online might have skewed the numbers? If we did see a price range breakdown do you think that the story might be very different in different segments and neighborhoods?

Anyway, kudos Condo

[Condo]

After several month of banter, JP, and perhaps many of the contributors to this site, are now at least considering that I may not be completely full of it. I have spoken to Kim Blanton several times, and know first hand that she is not an easy person to persuade. She comes across as highly negative and I believe that comes out in her work. In saying that, I hold her in high esteem. In my eyes, she is just trying to be an objective journalist. O&A general brokerage, consulting and on site marketing has been around for a few decades, and is held in high standards in the Boston RE community. If you follow publications such as the BBJ, Globe, WSJ and others.. you would know that they are quoted frequently. You are correct, they have a vested interest in the market. However, I see a firm that was fed up with the incomplete reporting of the data. A firm that was tired of the downtown market being grouped together with dissimilar national trends, local SFH decline and irresponsible, incomplete interpretation of the public data. They in turn, opened up lines of discussing with firms like LINK, calling them out on how they report the data, and LINK obliged, admitting it was flawed, but refused to change their protocol because it would have taken a lot of work to get right. I have mentioned this before in previous entries.

JP mentioned the "color coded map" that Blanton published months ago. This is a perfect example of incorrect interpretation of data, pushed out to the unsuspecting public. This map and article was partially incorrect not because she is unintelligent, but rather , because she did not understand the whole picture. Example: In the article and accompanying map, she suggested East Boston was in a horrible decline. If memory serves me correctly, East Boston was color coded red, with a -% correlated with it. The reality was, sales volume was up ...way up. However, the sold inventory was extremely different than previous years. Historically the sales in East Boston were multi family homes. More recently, the sales were condos. Sales volume much higher, sales price lower. So you have a strong condo market, strong sales numbers... being reported in a reputable publication by a reputable journalist , as tanking. Again .... this is a perfect example of smart people, completely missing what's going on. I remember reading this article and shaking my head. It actually sat in my office for months as a point of reference for confusion in the market....and journalists missing the point.

[BK-former Owner]

Condo,

Is it possible that there is greater - and drastically higher prices on the Super Luxury end of the Market. This drags up the Median price - more samples on the higher end - median prices ends up at a higher number)?

I wish they would publish the Mean and Median - perhaps providing more insight into the underlying numbers

I think there are lots of folks in Boston Mutual Fund and Financial services business that have done very well and could be a big reason why the Condo Market in Beantown is better than the Suburbs.

The Well paid financial Service person can afford to live in the City and probably may even prefer being in the City.

Any thoughts on my theory?

[JCK]

BK-

Condo has reported average prices, and they are indeed up. This would support your theory.

It would be interesting to see Case-Shiller index (looks at the same home sales over time) for the downtown market, although I wonder if areas like the Financial District and Downtown Crossing, which only recently have seen significant residential construction, would be appropriate for such indices. Such a metric might be more useful in Back Bay or the South End.

Finally, even if all of the more recent activity is happening at the high end, I'm not sure how that would undermine Condo's argument that the downtown condo market is indeed strong.

[john p]

I think the dialogue is fine tuning on this website, which is what keeps my interest.

What is so fascinating is the complexity of the situation. It is like there are parallel dimensions and realities. A city is often more complex than one person can explain, which is the best part of it. Because of this you'll find buyers, sellers, agents, reporters, and bloggers with different outlooks. You can root for the ones that help your future, but in reality you're better off knowing what the truth is.

It is nice to see that Kimberly Blanton has won over so many people's respect given the complexity and the fact that some root for one future and others for another. When you reach an inflection point it's like you feel this weightlessness, like the middle of a ski jump (in my dreams). This asset class has a lot of forces tugging on it. This seems to create the ingredients to create these bumps. We have seasonal trends and foreign ingredients like new developments that go online, currency fluctuations, interest rate fluctuations, inventory levels, a strong year in equities, etc. All these forces have a dialogue with each other and sometimes have different affects on different neighborhoods and price points. Steady movement one way or another starts to build up steam of which assessment is correct. When it inflects or changes we have to reevaluate and filter, which is unsettling for closed minded people or those that have a stake in one side of the pendulum. As the pendulum shifts it will either pull from your fingers or you can follow its course. Just don't take your eye off the elephant in the room

In reality, a minority of people have made real estate transactions in the past five years. The ones that are most susceptible for a major correction are those who bought in 2005 and could have had more bangs for their buck if they waited. How about that guy from Acton in one of Blanton's articles that got a place asking $565k for $450k. I think it said that he made 5 offers that got rejected prior to that on other properties.

http://www.boston.com/realestate/news/articles/2007/04/15/market_signs_suggest_worts_is_over_sales_gaining_steam/

To the people this guy lost those earlier bids on, they maybe have to wait another 5 years before they move before it all comes out in the wash. But it will and eventually they will be ok.

What is dangerous for our economy is when even though a small percentage of homes in a town or city is on the market, everyone else evaluates their property as a comparable. Sounds logical, but just as not everyone can sell their house at the same time and get the market price, not everyone should be able to refinance at market rate (which is essentially selling yourself your house at market rate.) We let a small number of transactions lever a tremendous amount of fake unearned wealth into our economy. Too good to be true, getting tax breaks during wartime?

What is also dangerous for our economy is the lack of discipline with respect to reporting of data on housing. For equities we have the S.E.C. Arthur Anderson got decimated because of false reporting. How is it that a common fundamental asset such as housing gets so little oversight and lack of discipline that we have realtor associations, and property owners reporting on office rents and sales? Realtors get their shorts in a twist if they think that the MLS and LINK are not being accurately reported, but you wonder if they are as sensitive if MLS might erase the true days on the market if a property gets re listed or if we have an accurate account of what a property truly had for an original asking price? Who's picking up the phone and pressing the Globe on that one? Doesn't it annoy you when the FED bases our economic health diagnostics on a pseudo profession with no accountability? How is this possible, we all need housing, why isn't housing the most scrutinized asset class with real accountable professionals at the helm and not by those who just need to take a weekend course? If I were a top notch realtor this would concern me.


What is curious is that on the one hand you have this tremendous potential energy for a substantial drop in prices due to affordability but lack the impetus for this to happen i.e. a Sept. 11th event or a deep recession. The housing market does make us less economically healthy and susceptible to catching a cold. Although I do see the world, particularly in the emerging and "gap" nations tilting/favoring towards democracy and capitalism because other alternatives suck, I do see us possibly being a stepping stone in it's progression and that we may prove to be past our prime. Think about historic ports like Salem and Newburyport, they were once great economic centers. England and France used to be a powerhouse. Will Boston still be robust if our cost of living inhibits the attraction of talent to help ensure our future? If we don't make it will it be with a bang or a whimper? I think if things settle down the water in the tea kettle that was whistling in 2005 will eventually cool down to a point where we can drink it. What is crazy is that places in California are so far off the reservation, you wonder how on earth those folks will recover.

As far as the elephant is concerned, think about it, when your $100 Nike's cost an extra 3 dollars because of gasoline and distribution costs, you can have your finger on the pulse for the little pulses, and you can get a team of Harvard MBA’s to help you save $1 on each pair with: synergies, tiger team business consultants, risk assessment analysis, 360 degree performance reviews, working 70 tireless hour weeks, limo rides home from work, morning calls, celebrity CEO’s. Corporate dinners and booths at professional sporting venues, multimillion dollar advertisement campaigns; but remembers it only cost $3 to make them in China.

Imagine the economic and social stresses China will have once a critical mass of their people starts to become wealthy, acquire land and others are starving? If any of these developing countries aren’t sensitive to their people and too much inequity and inhumanity is tolerated, we may see civil wars and if the non capitalist side doesn’t win we may be resented. Look at Putin; he’s on the verge of regressing away from capitalism and democracy.

If you don’t think the real estate bubble is tied to some of these things you might be wrong. All the artificial wealth created (the wealth effect) of refinancing cause a huge demand for foreign goods which created and explosion in development in developing countries. We empowered unstable nations in the past to serve a temporary goal and it came back to bite us. When you bought a t.v. from your home equity loan, the foreign country that sold it to you bought a US treasury bond. Local realtors, Otis and Ahearns of the world think they are local big-shots. They are like the old New England farmer families turned real estate developers that run or manipulate the little town governments. They aren’t making us more competitive, they are making it harder to get the critical mass of talent necessary to generate the ideas of the future and keep us on the cutting edge.

[john p]

I just did another look at Otis and Ahearn's spreadsheet for first 5 weeks:

http://www.otisahearn.com/marketstudies/marketreport_2007_fiveweeks.pdf

Look at the "Seaport" district's numbers; it looks like 2007's 23 units were selling for an average of $1.73 million. Prior years had like 13.5 units selling for around $900k

Scan your eyes across each year in each neighborhood. You'll find that every year had a wildcard neighborhood or two where some project must have gone online. If you discount these wildcards; you'll see the norm. Fenway had 36 units go down to 10 units from 2006 to 2007.

The next report:http://www.otisahearn.com/marketstudies/2007_q1_report.pdf

Shows that there were huge increases in Charlestown Navy Yard- Seaport- and Waterfront. Guess who represents a lot of new projects online there?

http://www.otisahearn.com/completed_developments.htm

Keep in mind everyone, to get a project like some of these built takes years in planning, design and construction. There are some big projects that have gone online a year and a half after the crest of the wave. It's like they got a truckload of Christmas trees show up on Dec. 26th. It makes sense that they might pull out all the stops to spin. If you had lots of units to move in a down market, you'd have to right? The spin is what people highlight and fail to qualify.

Housing projects like these aren't like "just in time" inventories. If it was such a great time to sell them why did some who had a chance to walk away at a loss before they built do so? The land cost when they started the project was based on future expectations of sales. They overpaid for the property and didn't think they could reach their sales targets and bailed when they could. What if they got caught with their pants down and had actually started building...

http://boston.bizjournals.com/boston/stories/2007/02/26/story7.html

Why would they do a desperate auction like this?

http://www.boston.com/realestate/news/articles/2006/09/06/going_once/

This may help you understand the culture of this breed.

http://www.bizjournals.com/boston/stories/2005/10/24/focus3.html?page=1

Do you think that this marketing strategy would have worked better with speculators? They are gone now right? Do you think this breed of salesmen would admit that they missed the wave? I'd bet they are like car salesmen on steroids and speed.

I think some of these guys are just happy that things weren't much worse. In all honesty, these new projects are pretty safe in my mind. After the condominium crash in the 1980's, it was mostly condos in the suburbs that seemed to go belly-up. A condo in a suburb was like a fish out of water back then and was the affordable alternative to a starter home. Once starter homes came back into reach, they didn't need that alternative. These condos serve those that embrace city life and they are new. The ones that need to be afraid most are the older condos that haven't kept up with maintenance or updates or has provided poor services to their building. I do think that you can deal with these big developments. Don't be afraid of them. If you are a computer programmer, think about all you know about it and when you look across at the salesman, everything he or she knows is all about taking you down in the transaction. That is how they live, nothing else to offer but to take a more than the average salesman. What you need to be afraid of are the hundreds of other condo dwellers that are trying to upgrade. A percentage will go to the soft single family market. This time right now is so critical for these developments because they will get their best price now.

[Condo]

Seems as though banter on this site has subsided from it's feverish pace of several months ago. Is one to assume that the negative sentiment has subsided? Is this a sign that most folks are in agreement that, in reality, there is no bursting bubble and some unforeseen anomaly is not going to topple all home prices, accross the board, in our area?

There is no question that the regional artificial panic has calmed down, folks now understand that national dissimilar housing trends have little to do with our area, most people believe that the worst of the local SFH decline is behind us and the MA economy is showing strong growth and positive fundamentals. Downtown Boston & Emerging Condo market is still cooking .......

[admin]

[Condo]

Interesting, thanks for sharing, although could not open the link. I'm sure it supports your position. Conversely, I could go out and find some bit of data that supports mine. From my perspective, and being involved at various levels, the sheer panic has vanished. If it does exist, they fail to discuss the topic. Six months ago, it was the first topic of conversation. I have no theory as to the lack of voiced concern. Perhaps folks are starting to think that a catastrophic collapse of the RE market is not eminent, as predicted by many? I simply don't see the concern. On the other hand, maybe folks are concerned....and they are just tired of talking about something that may or may not happen?

[admin]

Condo,

The server hosting that link is down for maintenance, unfortunately. However, you can see the data here, just not in one continuous graph:

• S&P/Case-Shiller Index Boston futures
  
• Historical graph of S&P/Case-Shiller Index Boston
  

This is in no way a cherry picked data source. The S&P/Case-Shiller Index is widely considered to be the highest quality measure of housing prices.

I would also like to clarify that the position of this site is not that there will be a "catastrophic collapse." An economic "bubble" refers to the state in which prices are inflated due to speculation. Any "bursting" is not a characteristic of the bubble itself, but rather one of many possible side effects which occurs afterward. When this site states that there is a bubble in the Boston Metro area, it means that prices are significantly higher than they have historically been relative to incomes and rents. It makes no prediction as to the timing or magnitude of a correction - the duration of the cycle is just too long to expect that everything that can happen will happen if you wait 1 - 2 years and then assume that you are out of the woods (e.g., Japan's real estate has been slowly losing value for around 15 years now). Besides, the futures markets are much better at making predictions than I would be.

- admin

[john p]

Ben Franklin said:

"Democracy is two wolves and a lamb voting on what to have for lunch. Liberty is a well-armed lamb contesting the vote."

That is what this website seems to be about.