bostonbubble.com

[balor123]

[url=Newton, MA ranked one of the highest-income cities in U.S.]http://www.bostonreb.com/2010/02/newton-ma-ranked-one-of-the-top-highest-income-cities-in-u-s/comment-page-1/#comment-14412[/url]

[balor123]

Newton, MA ranked one of the highest-income cities in U.S.

[admin]

[CL]

I will not draw too much conclusion by the simple median income/median house value ratios, especially in towns like Newton/Brookline. There are a lot of old money estates in Chestnut Hill, Newton Center areas that are simply not in the market but pass down generation after generation. Those houses typically have low/no mortgage on it. So it's perfectly possible that a public school teacher earning 50K per year but my parents are rich and inheret the family house, thus skewing the ratio.

The more interesting metric to look at is income/mortgage ratio, instead of income/home value ratio. If the income/mortgage ratio is low, that means people ability to service the debt is low, which means higher chance of forced sales when unemployed and higher chance of price collapsing.

Anyone knows how to get town specific aggregate mortgage/home value? One can get home specific data in land record but don't know how to get aggregate data.

[admin]

[CL]

Admin - I agree Price/Income ratio matters for your pool of potential buyer in case of resale. I just digged around and using City Data website for 2008 stat:

Income Price Income/Price Ratio
Lexington 124,495 716,857 5.76
Brookline 98,324 657,000 6.68
Newton 104,493 696,300 6.66
Needham 113,090 669,433 5.92

Waltham 69,445 427,167 6.15
Watertown 76,843 478,309 6.22
Somerville 58,466 448,400 7.67

Boston 51,688 400,100 7.74

Mass. 65,401 353,600 5.41

Newton Price/Income ratio is high if your mental benchmark is 3.5x, but in line with surrounding towns.

Rate increase affect buyers, not sellers. You have to remember price don't come down just because rate increase and fewer buyers can afford the house. For price to come down, you need few potential buyers AND more desparate sellers. The increase in rate reduces the buyer pool, but won't increase number of motivated seller. The result is reduction in transaction, reduction in supply (fewer tradeups and few potential takers means more people stay put) but relatively small reduction in price. Which I think is what happened for towns like Newton/Brookline/Lexington in recent years.

For sellers to be desparate, they need to be unable to service the debt. That's why I think Price/Income ratio is less relevant than Mortgage/Income ratio. If towns like Newton has more home equity, then the result of reduced buyer pool will have more impact in transaction volume, but not in transaction price.

[admin]

[CL]

The key is the elasticity of the demand and seller, which will change the pool of buyer/seller as price changes. What I am saying is unless seller cannot service their debt, they have little incentive to take a big loss to sell now. Which means the downward pressure due to small pool of buyer will reduce seller pool as well, reduce the housing stock, thus stablize the price. For buyers to get a good price in these towns, you need a perfect storm - almost all buyers collecting waiting on the sidelines beause of uncertain prospect (instead of bidding each other to death) and sellers suddenly in a lot of trouble and have no choice but to sell. It typically happens when unemployment is rising shapely (08-09). But now the acceleration of unemployment seems to slow down a bit so I am less sure if there is another huge price collapse.

Re: mortgage rate and price, I understand the arugment and rationale, but when I download the data on mortgage rate and Boston house price and actually did the analysis, I cannot discern a good pattern or significant correlation. So if anyone have good statistical analysis, do post.

On a separate topic - I did the comparison of some of the selected topic Income/Price ratio in 2000 (pre bubble) and 2008 (late bubble). Poor neighborhood Price/Income ratio increased 52%, followed by middle income group 35% then high income towns 32%. Info from City data.

2008
Income Price Income/Price Ratio
Lexington 124,495 716,857 5.76
Winchester 120,926 706,456 5.84
Needham 113,090 669,433 5.92
Newton 104,493 696,300 6.66
Belmont 103,241 727,606 7.05
Brookline 98,324 657,000 6.68
Average 6.32

Arlington 82,732 493,912 5.97
Watertown 76,843 478,309 6.22
Waltham 69,445 427,167 6.15
Medford 67,472 397,869 5.90
Somerville 58,466 448,400 7.67
Average 6.38

Brockton 52,145 265,900 5.10
Revere 48,231 329,555 6.83
Everett 52,281 309,974 5.93
Lynn 43,216 290,500 6.72
Average 6.15

2000
Income Price Income/Price Ratio
Lexington 96,825 413,500 4.27
Winchester 94,049 407,500 4.33
Needham 88,079 380,700 4.32
Newton 86,052 416,600 4.84
Belmont 80,295 419,700 5.23
Brookline 66,711 395,300 5.93
4.82

Arlington 64,344 284,900 4.43
Watertown 59,764 275,900 4.62
Waltham 54,010 246,400 4.56
Medford 52,476 229,500 4.37
Somerville 46,315 262,000 5.66
4.73

Brockton 39,507 127,900 3.24
Revere 37,067 172,400 4.65
Everett 40,661 178,800 4.40
Lynn 37,364 145,300 3.89
4.04

[john p]

I think you need to step back and look at a State wide population.

Look at it like the wealthiest 10 percent of buyers choose these towns, and the next 20% chose these towns, etc. etc.

Mostly, it follows the MCAS (school test results) starting from the closet to Boston outward.

My feeling is that the wealtiest aren't always the smartest and many overpay for that marginal benefit. Being 40, I've seen many sleeper town become exclusive bedroom communities. Hopkinton, Topsfield, Boxford, Norwell were farm towns and now they're very expensive and have great school systems. I think the best value is in up and coming towns.

I often wonder if a yuppie parent has a kid that isn't going to go to Princeton if they're still going to love them or treat them like a complete failure. I mean if your kid is gifted you do what you've got to do but paying an extra $300k to get the same house in one town verses the neighboring town doesn't make much sense i.e. Kingston versus Duxbury.

[admin]

[balor123]

In any Ponzi scheme, there are always significantly more losers than winners. However, I think CC may be right. There certainly are desperate sellers but there are also desperate buyers and there's a war of who's more desperate. Unemployment is low for those making $100k+ at only 4%. There is unfortunately no real insight other than what we see on TV, which has huge sample and perhaps other biases. I would love to see mortgage to income ratios but have no idea where to find it. I suppose I could write a script to extract mortgages from masslandrecords but where to get the income from?

[CL]

balor123 - will be great if you can write the script to get the mortgage info. Income info is easier I think since it's quite stable. City Data has 2000 to 2008 town data, then we can go from there (overlay with national trend maybe).

Rightly or wrongly, a lot of people (esp young families with kids) wants to live in Newton, Brookline, Lexington, etc. for their schools. To an education-minded family, it becomes a choice of living in more affordable town + private school, or expensive town + public school. Housing cost can be capitalized, tuition cannot. Thus it makes sense for people, all else equal, to pay a premium for town like Lexington where the public school is comparable to private school. it's just very hard for parents to say no to themselves when it comes to giving or denying their kids a good education. It also set a deadline for the family to move (before kids go to school). That's why I think having a good school system in your area gives you a captive, time-sensitive, and often finanically-irrational set of potential buyers.

admin - I fully agree there are always some sellers that have no choice but to move (divorce, kid situation, etc), and if you find that cornered seller you can have an absolutely ridiculous bargain. Seen that happened before. But looking at the drop in transaction pre and post bubble, I think seller, as a pool, in general can be more flexible then you think, especially in these expensive towns.

[admin]

balor123, if you decide to write a script, email me first. I might have something of use. A question, though - is the mortgage info part of the meta-information viewable on the HTML pages? I thought you have to look at the actual documents, which are in TIFF format and therefore not particularly amenable to script processing.

- admin