bostonbubble.com

[GenXer]

I lived in Newton for the past 15 years, and I'm currently renting in Newton. The median income for Newton is around $100k a year, and with median prices around $750k, the situation is unsustainable. Most people living in Newton live paycheck to paycheck, and the so-called 'rich' are only considered rich by their spending habits, not by their savings. Most people do not have enough savings to last a couple of months. I've also observed stay at home mom phenomenon - there are many families with only one spouse working, so an unemployment check is not going to cover expenses for most of these families. Because I know one particular area of Newton, I've been observing the prices and trends, and what I can see right now is this. Some houses were taken off the market, however there are new houses that have been added quite recently. Properties that have been listed for months have been discounted several times, but many are still hopelessly overpriced. Some of these are standing empty, and owners are bleeding cash. Many of the loans on these properties involve small downpayment and a double mortgage. Many of them were bought less than 5 years ago, and some are new constructions. It seems that there are absolutely nobody visiting these properties during Sunday showings.

My conclusion is this. Unemployment, and nothing else, will be the deciding factor. Fidelity just declared that they will be implementing previously announced layoffs (~1700 in MA). Bose laid off 1000 people. Law firms are going to be next. Those who are high earners will be hit especially hard because many households have a single earner. Many people (boomers) will be taking early retirement (whether they want it or not), and will have to downsize within the next few years (some earlier than later due to layoffs). State of MA will have to lay off lots of people (possibly attrition/early retirement). Recent grads (even doctors) have debts approaching $200k, and they will definitely not be able to afford to buy. Many people whose only 'retirement' account consists of their house will have to sell, and fast. There are hiring freezes in most companies, so there will not be a high earner inflow into MA for the next few years. The worst is yet to come!

[admin]

[JCK]

[admin]

[JCK]

[admin]

[Hard Rain]

[barry]

Fidelity is laying off more people (and they have offices in Mererimac, marlborough, and smithfield, those offices whould not impact the metro boston market... and they are growing in NC and TX... MFS was sold, and they are already restructuring... State street will announce layoffs soon... These layoffs impact other firms as well (legal, real estate, pro services-tech, mgmt cnst, architects, recruiting, etc). Accenture, Merrideth grew, spaulding sly (there is an article on the pending commercial real estate Apocalypse on seeking alpha) all represent a high paying base of employees that will be greatly impacted by what is going on.

This is a national crisis, and even though some, even the majority, will not be effected, a large percentage will by either loss of jobs or reduced salary/bonus... does this mean they cannot afford to stay there? My guess will be yes for many.


the reality is that this market like all others will be impacted.. how bad? who knows but if this drags on for more than 12 months, there will really be no insulated towns...

[JCK]

Hard Rain,

With all due respect, I just searched other West of Boston towns, and none of them are down anywhere near 35%.


Newton, Brookline, Belmont show nothing of the sort.

I think Weston must be an outlier (perhaps due to a few very expensive homes selling a year ago?)

YOY data for any single town is going to be highly noisy, given the small number of sales in each cohort.

[samz]

It seems like there is a fundamental asymmetry between prices going up and prices going down. The vast majority of people cannot sell a house for less than they paid, except under dire circumstances. Most people in nice towns are not experiencing the same dire circumstances as people in other towns (and other parts of the country). As a result, these town get "locked in" to a price structure.

Perhaps this asymmetry has a simple explanation: a house is typically a highly leveraged purchase, so even small losses are greatly amplified.

Here's an interesting question...
What happens in this scenario: two houses, next door to each other, in Lexington both go on the market. One house has been owned by the same family for 15 years -- they bought it for $200K and would walk away with a decent chunk of cash even if they sold it for $300K. The other house was purchased in 2005 for $600K. To make things interesting, let's say that the first house is a little outdated; the second house has some nice updates (but nowhere near $300k worth).

Can the prices be set based on ability to sustain a nominal loss?

[balor123]

A house in Lexington for under $500k?

It's good to hear you guys talk. I've lived in MA for 6 years and it's looking like I won't get much past the $100k mark and it looks like I'll need roughly twice that to stay. I figured everyone else living around here - even in Waltham! - was making 50 - 100% more than me. What confuses me is that many of my coworkers seem to be able to afford it. One is building a house in Wellseley right now. Another already rebuilt a house there. Others live in Brookline, Lexington, Cambridge, etc. With the pressure on wages now (and since I started working since I've never worked for a profitable company), I think I'll be lucky to get much past this even ignoring inflation adjustment! I've been telling my wife if she wants to stay here to expect a house below her standards but so far we've been doing quite well renting.

I think others are right that layoffs will eventually force prices to come down but I'm beginning to think that it won't happen, not because the market won't get to work but politicians won't allow it to. They're pushing interest rates down, allowing mortgage modifications, extending unemployment benefits, etc. Even without that help, we've seen articles in the past which explain that these people still have lots of cushion and are resourceful in avoiding losses. It will take a long time to break them down and I fear that the market might recover before that happens, which won't likely raise prices but keep them persistently expensive.

Let's also keep in mind that part of my competition is from government employees. This state seems intent on pricing out private workers with public workers financed by debt. Have you seen this article? Check out this quote: "Balser said, and almost anything was preferable to cutting or freezing wages." It's like the government serves its employees, not citizens.

In this state I'm apparently not a hard working American because I don't work for the government (There's a long list of things on the table before reducing salaries of hard-working public employees). GenXer - why do you and your neighbors put up with this kind of leadership?[/url]

[samz]

[Guest]

I think most of my coworkers fit your explanation. They either got in early (1990 - 2002) or cashed out and then came back. Eventually these people will downsize but I don't want to wait.

Competitiveness isn't an issue for our state right now. We'll keep the cost of living high, raise taxes and borrow to cover expenses, and place further burdens on business in this state. I can't wait to see what the emigration from the state looks like over the next few years!

[GenXer]

I know some people who bought houses in Newton in the early 90s - they will not last a year without a job. Most have never paid these houses out, and they bought for under 300k!

Another thing...doctors have huge debts, and there are many older retiring doctors and many young ones, and the young doctors have debts approaching $200k. They also don't make that much just starting out until they finish residency, and then they jump to get married and have kids, and if they buy a house as well, they will be in a dire situation if anything happens to their job, since they probably married somebody just like them with a huge debt.

Most 'medians' work for construction, have a small business or work in high tech. Oh, yes, and there are government hacks in MA all over the place. This is a one party state. We have some state policemen making 200k+ doing 'details'.

Many of us are agsinst this corruption. Thats the point. I've never voted in municipal elections until the school override, which we lost. Since then we've voted down the first of many tax overrides. There are a lot of people now (the Newton 'have-nots', so to speak) who will vote against the school (some stupid parents and city workers voted for it, retirees voted against it).

However, the hacks always seem to vote for more of our taxes to pay for their salaries and spending. If anybody is tracking what is happening in MA right now - it will be a total collapse unless the government stops spending and starts saving (or unless Washington bails MA out, which will happen eventually, I'm afraid). But the taxpayers in MA are fed up with the government, and will not approve more spending. Cities and towns will start cutting the pork, because thats the only way the elected officials will be able to keep their cushy jobs.

[jad]

Hard Rain said "Weston Median price is down 35% YOY per Trulia".

The Warren group, which gets their data from Registry of Deeds, is much more accurate than Trulia. Per the Warren Group, in Weston:

Dec 2006 Median Price: 787,500
Dec 2007 Median Price: 1,073,500
Dec 2008 Median Price: 1,400,000

Full Year 2006: 1,200,000
Full Year 2007: 1,225,000
Full Year 2008: 1,317,500

The number of sales in Dec 2008 was also higher than 2007 (7 vs. 6). Obviously with a sample size this small, the December data isn't too reliable, but the full year stats show nothing like a 35% decline, nor do stats from Q3 2008.