bostonbubble.com

[JP]

Can somone who has some sort of expertise in this area please give their persepctive on where they feel the Boston area suburbs are headed in the next 12 months? If possible, can you please keep your terminology fairly simple to help all readers undersand (including me). I am a fairly intelligent person and frequently have to reread and try to disect what people are trying to say on here due to they are speaking a lingo mostly known to others who have a certain level of expertise in the the real estate market. Therefore I (as I would assume others as well) sometimes have a hard time fully understanding what people are saying even with reading it 3 or 4 times.

I am planning a move in the Boston suburbs and plan on renting for at least a year unless I can get some info here and other places that tell me otherwise. Thanks in advance for everyones info and for keeping things fairly simple.

BTW - The asking prices for what you Bostonians are asking for your properties are CRAZY!

JP

[WestCoastXPlant]

Let me make it real simple: down.

(if you want a slightly more complicated answer -- flat at best but very unlikely).

[john p]

The low end homes will go down 10 percent.

The median home will go down 8%.

The upper end home will go down 5%.


If a house is unique and doesn't appeal to the masses you could see it go for up to 10-15% off. There are a lot of houses overpriced so they might appear to go down more but they're overpriced to begin with.

If mortgage rates stay in the low 5's and credit is available prices might stay just lower than flat lined. If they offer incentives, it might spark a bottom. I doubt a bottom will come because the government is too slow in getting the spark to fire soon enough to catch this spring season. In areas where there is a lot of competition, prices might stay flat and you may see price bidding wars on selective properties.

The best way to check and get up to speed quick is to get the MLS listings and pick what you think are winners and watch how long they stay on the market.

[Boston ITer]

Personally, I believe it can go down, another 8-10%, and then flatline for a whole decade before going up again.

That would be the best case scenario so if you can hold out, a bit longer, you might be able to get a price where if, you're forced to later move, you can recoup your losses w/o going into negative equity territory. And that's the key... the good jobs are leaving the area. Keep mobility at the back of your head.

And like a lot of people say here, keep your eyes on immune towns and less on brand new development townships. Realize, during that small RE bust in the late 80s/early 90s, houses in Haverhill were being auctioned at $15-20K and that was the new development (the whole Rte 495 bubble) of the big Iron era (Wang, DEC, DG).

[Guest]

$650,000 $450,000 $200,000
Yr1 $598,000 $580,060 $414,000 $401,580 $206,000
Yr2 $598,000 $562,658 $414,000 $401,580 $212,180
Yr3 $598,000 $545,778 $414,000 $401,580 $218,545
Yr4 $598,000 $529,405 $414,000 $401,580 $225,102
Yr5 $598,000 $513,523 $414,000 $401,580 $231,855
Yr6 $598,000 $498,117 $414,000 $401,580 $238,810
Yr7 $598,000 $483,174 $414,000 $401,580 $245,975
Yr8 $598,000 $468,679 $414,000 $401,580 $253,354
Yr9 $598,000 $454,618 $414,000 $401,580 $260,955
Yr10 $598,000 $440,980 $414,000 $401,580 $268,783

Real (inflation adjusted) net worth at end
$440,980 $670,363
$229,384

[ConcernedCitizen2]

Hi, those numbers above were me. I tried to do a simple example that illustrates the dangers of a house staying the same price for ten years, if there is a 3% inflation rate.
In example 1 you start with a 650k house, that drops 8% in the first year and then flatlines (stays same price) for the remaining 9 years.
In the next column I calculated what the inflation adjusted value of that house would be each year, if there is 3% inflation each year.
At the end of the 10 years your inflation adjusted value of the house is $440,980. It matters to do this inflation adjustment because if you are using that house as a savings mechanism for retirement etc you have to factor in that when selling you'd be able to buy less goods and services.

Example 2 assumes you have $200k cash in the bank and instead buy a cheaper home at $450k. So not down to the level of a bad neighborhood, still a decent amount of money. Then again assume house 2 loses 8% the first year and stays same value for the remaining 9 years.

You put your $200k into Treasury Inflation Protected Securities (TIPS) that pay the rate of inflation more or less (3%).

At the end of the ten years your house is worth $440,980 but the TIPS are worth $268,783 so your overall inflation adjusted net worth is higher by $229k.

I just use this example to highlight how much it matters if you can eke out savings on the price of the house. My friends bought a foreclosure house in Marblehead for around $500k or so and while it needs cosmetics it's in ok shape. I think it was an overleveraged developer in trouble and they didn't have to kick out a family.

If you assume inflation will be higher than 3% over the next ten years, which is possible because of the money printing going on to try to save the economy, and you still think houses will flat line during that period, the picture is even worse. At 5% inflation each year, the real house value at the end of the period (keeping the initial 8% drop), is $365k.

I checked my calculations and hope I made no error here, if anyone spots something please let me know.

I should also disclose that I am generally still housing bearish at this point but probably not more bearish than the scenario the others outline and I use in this caltulation.

I do see the point of WestCoastXPlant: if you have 3 kids, you need to pay for good schooling, private school prices have traditionally been rising very fast, so buy a house in a town with great schools, this can save me money.

I don't know if that is your situation as well.

[Boston ITer]

[Guest]

Decade long downward trend

eventually will catch up with
all the better neighborhoods and towns

Houses will be cheaper a decade from now
than they are now

foreclosures will be prominent for many years to come

[Brian C]

Right now the circle of (real estate) life is broken. The FTHB will be the ones to blame on driving prices lower. 48% of all housing sales in MA came from First Time Home Buyers. If this group does not buy, then sellers cannot trade up or move out of MA.

There was alot of transactions in the Greater Boston area between 2003-2007. How many of them realize their property is worth less than they paid? Whats going to happen when they want to sell? Write a big fat check at closing!

Deal with people with equity and you will get a great deal.

[john p]

A lot of the opportunity is based on the fact that people are being conservative and not spending, so the only people coming to the table right now are those that HAVE to sell.

Moreover, getting credit is much harder. If you take away the people who were buying houses with no money down, or even up to 5% down, that was a big percentage. Without those people to compete with, the people who qualify with traditional fundamentals, i.e. can put down 20% had have a stable household salary of 1/3 or so of the house price will be able to get a great, great deal.

[Brian C]

More data that people dont have money to buy houses:

http://www.boston.com/jobs/news/articles/2009/03/15/job_loss_rate_rose_sharply_in_january/

MetroWest region lost 1,798 jobs in January
MetroWest region lost 1,590 jobs in all of 2008.

Boston-Cambridge-Quincy region lost 18,860 jobs in January.
Boston-Cambridge-Quincy region lost 19,372 jobs last year.

[Boston ITer]

And it seems like much of the new hiring is govt related.

Well, I guess there's the future bottom for housing... how much a typical govt employee can afford to pay, long term, for a piece of property.

[balor123]

Government employees around here can afford to pay a lot for housing - which is part of the reason that living in MA is so expensive. Not only does paying taxes (future included, which will be much higher with our current debt) make us poorer, but they also make buying a house less affordable!

[GenXer]

balor123: You are assuming that they are actually good with money and dont get caught in a spending bubble Yes, there are public employees who are making a bundle, and yes there are a many of them, but I think this spigot is about to get shut off. I think people have had enough of the government's spending. In any case, they are not really making that much more in salary, but rather in pention benefits, which can be substantial. However, with the government spending as much as it is, there will not be any money left when the states squander this handout, so we are looking at potential big cuts and layoffs.

[john p]

Even if people are fed up with government spending, if the government hires enough people, those people vote and make up a political self serving force.

The Democrats have been brilliant with demographics and getting enough people addicted to entitlements that they have gotten that critical mass to outvote reasonable industrious hard working tax payers.

We will see the fate of socialistic europe where their government priced them out of the equation.

People don't want to admit it, but what held wages in the manufacturing sector in check was China and other emerging nations. While the automotive unions were benchmarking inflation within the country (actually trying to outpace it), they should have benchmarked their ACTUAL competition, China, Korea, Japan, India, Mexico, etc. People have to benchmark their industry's competion in a GLOBAL context. Government workers are so out of touch it is crazy, they are crippling our Nation's ability to be competitive and provide the wealth to sustain our country.

Drip, Drip Drip, the Democrats added workers to the dole, added hand outs and gained power by a populist message that blamed the wealthy. The wealthy maintained their wealth because they were competiting with other investment class people in the global market. People in manufacturing had their wealth held in check by their new competition in China. Is that the wealthy's fault that China can make a product cheaper? Shouldn't our politicans be trying to create a level playing field so we don't have to deal with excessive regulation while our competition can play with wild west deregulation? Instead, we'll add nonsensical regulation and make ourselves even less competitive.

The Republicans have to take a hard look at immigration. Without the latin vote, they will never regain power. It is kind of sad because we can't have a Party be successful unless they bend to the "Illegal" nature of our "Illegal Immigration" problem. We're at a point now where we have to bend and make concessions and pander to those that break our laws. We have to do this because there are so many illegal immigrants and people who want them here. If you're in manufacturing, not only do you have to contend with China, but an illegal who doesn't have to pay taxes and play by the same rules. The Democrats have been offering illegals entitlements because they understand the power of that voting block.

We need change, that's for sure, but people need to start getting behind the industrious values that helped build our country and not pander to those that are undermining and hurting those that are working hard and playing by the rules.