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Bad time to buy?

 
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looking2buy



Joined: 07 Oct 2007
Posts: 2

PostPosted: Sun Oct 07, 2007 7:07 pm GMT    Post subject: Bad time to buy? Reply with quote

Let me first thank you for this site. I stumbled on it earlier today and have not put the laptop down. I have found your insights very informative and valuable. I am currently looking at condos in South Boston and am wondering if I am completely nuts for buying in this market. I made an offeron a place earlier this week which was outbid - and although I was quite disappointed initially, after reading this site I am somewhat thankful. I have been considering buying for about a year. I am currently renting and "like" where I live, but don't "love" it - there are certain amenities that I would like that this place just doesn't offer - and I have looked at other rentals offering these amenities. They are comparable to what it would cost to buy. I do not have the illusion or expectation that when I do sell I can expect double digit returns on the value... I am looking at my home purchase as a place to live rather than an investment, but at the same time I don't want to buy something that will lose significant value should I try to re-sell in three, four or five years. That being said, there are several posts that seem to indicate that now is a good time to make lowball offers. Any tips for determining what is a good lowball offer - how much room there might be in the seller's price - and how to determine if my property will continue to at least be worth what I am paying for it?

Thank you!
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Boston ITer
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PostPosted: Sun Oct 07, 2007 10:15 pm GMT    Post subject: Reply with quote

Quote:
I am currently looking at condos in South Boston and am wondering if I am completely nuts for buying in this market.


Not nuts, just slightly misled by this decade's mainstream thinking.

You see, when I was growing up, South Boston (a.k.a. Southie) was considered to be a place to move out of, not into. Essentially, the best and brightest, growing up there, attended one of the Latin h.s.'s, got a full scholarship to a UMass or Northeastern, and found work in the 'burbs from Rtes 128 to 495. That's where they are today, anywhere from Reading to Needham to Marlborough but not back in Southie.

A more middle class but nice working town place to live in was Watertown, the largest former Soviet-Armenian centric community in America and for the most part, still retains that identity even today which is why other non-Armenian middle classers tend to gravitate towards that direction. In contrast, the inner city of Boston is experiencing a RE bubble-related gentrification and unfortunately, unless one lives in the North End, the Hill, Back Bay, West Roxbury, or some sections of Fenway, when things go bad (meaning loss of jobs in the region plus a pike in crime), you wouldn't want to be owning in any of those areas and I'm also including sections of JP, away from the Pond and Arboretum, in this analysis.

Here's my question to you, when State St's subprime exposure (http://tinyurl.com/298aqn) trickles through our city's last remaining financial services sector, what you think will be the affect on real estate? I suspect that's when the newly gentrified regions will experience the biggest implosion in RE prices, esp condos, since they're generally created for the working professionals who don't want to commute on the Pike or Rtes 2/93 into the city.
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looking2buy



Joined: 07 Oct 2007
Posts: 2

PostPosted: Mon Oct 08, 2007 12:10 am GMT    Post subject: Reply with quote

Thank you for your response. I have lived in the Boston area for about 12 years now, and if you had told me when I first moved to Boston that I would be buying in Southie I would never have believed you. My personal decision to live in Southie is predicated on the fact that I love the area. I live here now and truly enjoy the area - I head down to Castle Island daily, walk to work in the financial district, and feel like I have the benefit of living in the city while not having to deal with living in the city. (I lived in the North End for about five years and as much as I loved the North End between the crowds and parking and rodent issues, not to mention that I would maybe be able to buy a studio for the price that I am looking to spend, I just decided that true "city living" is not for me any more.)

That being said - you do raise an interesting point about the risks with State Street's exposure to the subprime markets - coupled with Fidelity moving a great deal of their operational functions to NC - there certainly is the risk that all of these units that have been built to cater to the financial services industry will find their owners (and future potential buyers) having to move elsewhere (Charlotte) for employment.

I have identified a great property here that I am very interested in - but am just getting cold feet and can't seem to make myself pull the trigger. Hmmm... lots to think about.
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Boston ITer
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PostPosted: Mon Oct 08, 2007 4:16 am GMT    Post subject: Reply with quote

BTW, I love Castle Island; I'd first gone there as a kid to see the tall ships for the 350 jubilee. Haven't been there since my coming of age but I've heard that the whole area around there is a nice place to live these days.

Realize, I'm a lifelong Boston/eastern Mass person (with the occasional stints in other states and countries), however, when my company goes through its next downsizing exercising, I'm packing. The whole of metro Boston is going to get whacked like no other time. This isn't NYC, we just don't have the volume of rich people (Wall Street bankers, entertainment/media darlings, gilded international globe trekkers, etc) to keep the area in a perma-RE plateau like the tri-state region, esp that line between Stamford and Westport CT, as well as the city, itself.

Whole industries have left Mass for greener pastures stateside or abroad. The RE bubble wasn't based upon any market fundamentals (increase in mainstay companies and local jobs) but cheap lending and speculation on future growth with this sort of snobby undertone that thanks to Harvard/MIT startups, biotechs, and elite hospitals that RE will always be high for this region. Really that's not true; the RE bubble [esp for condos] in the 80s had better market fundamentals as places such as DEC, Banyan, Data General, etc were hiring and adding capacity like no other. During this '01-'05 bubble, we lost a few hundred thousand tech jobs which were replaced by jobs associated with the RE and mortgage industries.
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Boston ITer
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PostPosted: Mon Oct 08, 2007 4:18 am GMT    Post subject: Reply with quote

BTW, I love Castle Island; I'd first gone there as a kid to see the tall ships for the 350 jubilee. Haven't been there since my coming of age but I've heard that the whole area around there is a nice place to live these days.

Realize, I'm a lifelong Boston/eastern Mass person (with the occasional stints in other states and countries), however, when my company goes through its next downsizing exercising, I'm packing. The whole of metro Boston is going to get whacked like no other time. This isn't NYC, we just don't have the volume of rich people (Wall Street bankers, entertainment/media darlings, gilded international globe trekkers, etc) to keep the area in a perma-RE plateau like the tri-state region, esp that line between Stamford and Westport CT, as well as the city, itself.

Whole industries have left Mass for greener pastures stateside or abroad. The RE bubble wasn't based upon any market fundamentals (increase in mainstay companies and local jobs) but cheap lending and speculation on future growth with this sort of snobby undertone that thanks to Harvard/MIT startups, biotechs, and elite hospitals that RE will always be high for this region. Really that's not true; the RE bubble [esp for condos] in the 80s had better market fundamentals as places such as DEC, Banyan, Data General, etc were hiring and adding capacity like no other. During this '01-'05 bubble, we lost a few hundred thousand tech jobs which were replaced by jobs associated with the RE and mortgage industries.
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bk- former Owner
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PostPosted: Tue Oct 09, 2007 1:49 am GMT    Post subject: No rush to buy Reply with quote

You aren't getting cold feet or afraid to pull the trigger - you are paying attention to a rational argument that explains why Real Estate is out of whack.

I've owned a home and rented. I loved owning a home - but, the out of whack prices are not support by fundamentals.

Lets compare how Real Estate has done compared to or items since 2004:

Since 2004
oil has doubled in price
eggs have doubled in price
milk has doubled in price
gold has double in price

Real Estate in Massachusetts had NOT double since 2004. Sadly, people pay more attention to Real Estate than the other true commodities that they consume in their daily lives.

Have you asked any business men how difficult it is to get a bridge loan to keep your company operating? Credit is getting more difficult to get - this just started in August 2007. The true effects will not be evident for a few more months.

If you can - delay making any other offers until after January 1st. The Credit crisis may become more obvious to non-financial folks.

My prediction is that you'll chose to make an offer- its difficult to resist the Mob - in our society you feel like an out sider if you rent. I'm happy to be an ouitsider for the time being - I'll buy when there are bargains to be had!
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Tue Oct 09, 2007 12:13 pm GMT    Post subject: Reply with quote

South Shore:

http://www.boston.com/realestate/news/articles/2007/10/07/down_south/

http://www.boston.com/realestate/news/articles/2007/10/07/south_shores_soft_market/

Check out these numbers in the links above. Ask yourself if the physical houses and communities really separated to that degree last year. Did Abington which dropped 9.4 percent really depreciatate 21.7 percent versus the adjacent Hanover which went up 12.3 percent? Isn't this a behavior of the market, i.e. Hanover is attracting a higher end segment of new buyers? Check out the old blogs, I pointed out Hanover at least a few times. Pembroke which is next to Duxbury and Hanover went up just as well.

The "Tale of Two Cities" theme that the researcher for the newspapers are reporting on is also true for the outer suburbs.

As much as I think that the schools in some of the pedigree towns are currently better, my feel is that they will be populated with "me-too" types of yuppies. I want my kids to live in a community where people are dynamic, make things happen, build things so that they can see the physical transformation between the raw and the cooked. This is important because it provides the spark that hey anything is possible and these are the fundamentals in mechanics, properties of materials, organizational and marketing models to make things happen.

I think the greatest time in American ingenuity came right around in and after WW2. People had a balance of a newly acquired higher education with a background in physical hands on knowledge of how things worked. Things were explained in simple terms, people could work on their own cars and motorcycles and knew how to grow vegetables in the ground. I know that some towns offer better SAT prep courses, but to those kids everything comes in in a box from the mall or a big box place. Further, the knowledge of tooth to tail is amazing. I just met this guy Paul Gill from Brockton and was absolutely blown away with his operation.

http://www.gillmetal.com/

This isn't one of those corporate lightweights, this guy knows everything about everything in his operation and it is truely amazing to meet someone like this. He even races funny cars....
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Tue Oct 09, 2007 3:14 pm GMT    Post subject: Reply with quote

An example of what I'm talking about is Littleton. I think the kid who's president of Google came from Littleton. Some people in surrounding towns see Littleton as being beneath them. It worked out ok for the kid from Google.
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Dan
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PostPosted: Tue Oct 09, 2007 4:03 pm GMT    Post subject: Southie Reply with quote

I was just in South Boston last night, having dinner with a friend. She and her husband bought their 1800 sq. foot, 3 BR, 2.5 Bath house a year ago for $600K. It's just off D Street, near Broadway.

It's situated right next to an abandoned building with holes in the windows and is right down the street from the new housing projects. She told me of the hoodlums who congregate around their place and the teenager who recently urinated on their fence.

I thought to myself, "And they spent $600,000 on their house?!?!"

All the new trendy yuppie restaurants aren't going to compensate for the fact that the neighborhood's core population is sketchy. The yuppies are going to have kids, realize they don't want their children growing up in that environment, and will leave behind their granite counter tops and flock to the 'burbs.
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Boston ITer
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PostPosted: Tue Oct 09, 2007 6:11 pm GMT    Post subject: Reply with quote

Quote:
I was just in South Boston last night, having dinner with a friend. She and her husband bought their 1800 sq. foot, 3 BR, 2.5 Bath house a year ago for $600K. It's just off D Street, near Broadway.


From what I've seen, the dilapidated parts of Brooklyn or Queens still go for $300K-$400K for similar types of properties. And those townhouses really are bedrooms for those who can't afford to both live and work in the city; these wannabes generally hang out in the Heights or some other nicer areas for entertainment. Really, outside of Manhattan proper, even the metro NYC area is more in line with the market fundamentals, meaning the job market, of the region. Boston is living in some distorted la-la land of the mid-80s where tech companies/MITers only come here, real estate only goes up, and that there's some permanent barrier against these parts from becoming a white collar rust belt despite all our companies actually leaving.
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Tue Oct 09, 2007 7:51 pm GMT    Post subject: Reply with quote

Rent Control background:

http://www.nhi.org/online/issues/80/massrent.html

http://www.manhattan-institute.org/html/cr_36.htm

http://www.spoa.com/pages/013rent-control.html

rent control creates housing shortage?:

http://www.boston.com/news/local/massachusetts/articles/2004/01/07/romney_targets_housing_shortage/

college enrollment skyrockets creating increased demand on local housing:

http://www.rismedia.com/wp/2004-08-27/housing-shortage-threatens-to-cap-enrollments-at-boston-colleges-universities/

Then add the perfect storm of lowering interest rates and you get a bubble.

Right now, lots of these older neighborhoods that hadn't had a facelift since the 1970's because of rent control started to ratchet up since 1994. This was a correction to the market to some degree and now it is projecting through a headwind of resistance...
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