bostonbubble.com

[balor123]

Hi guys,
Just wanted to post an update on my move to Austin. House is finally finished 1yr later (pics here) and I don't like builders anymore. Still, final price ended up just below $600k for 3500sf, 5br, 4ba, office, media. Too big really but good schools and close to downtown and most homes like this around here would cost $200k more. Don't like the style much (I like modern) but I guess it's our fault.

Anyway, I didn't post to gloat so much as provide some reflections, which I thought you all might find interesting. This home would easily cost 2-3x as much in Boston I think. While a good location for Austin, I do miss the walk-ability of Boston and even the noise, as its very quiet here. I think 2200sf - 2500sf is more than enough with a modern floorplan now, perhaps even less.

I can see that the market is Boston has gone for bad to insane, with most properties asking $350 - $500/sf in immune towns. I see lots of new construction in the $1mil+ range but virtually none under that, surprising since even in 2005 timeframe there were a lot of condos going up. I see opportunities for teardowns. There's lots in Arlington in $300k - $400k range and a few in Newton and Lexington even over the past year, some even in the $200s. Believe it or not, other than my fluke infill development, that's similar to the price of teardowns around here! Price/sf is still much lower though and construction costs are also much lower due to the large amount of activity in the outskirts.

Makes me wonder, though, if I ever moved back - do you all think it's reasonable to put a modular home on one of these lots? There's actually a lot of activity in high end modern modular homes, with startups like Blu Homes, headquartered in Waltham! One I like in particular is Connect Homes, which they claim can be shipped anywhere in the country for something like $10k due to usage of standard shipping containers. Seems like you could drop the connect:7.4 (2240sf) or connect:8.4 (2560sf) on one of these lots for about $600k - $800k, bypassing most of the high local construction expenses. The value of such properties look like they'd be worth $100k - $200k more than cost, with only a 6mo timeline. What do you all think of this?

Anyway, plenty more to say but will leave it here for now. I do travel back to Boston 6 weeks a year for work if you guys still want to try a bubble hour.

[GDMA]

Your new house looks great, congrats! 600K for 3500sf, does that include cost of land? I've always wanted to build, but it's a highly unlikely dream in boston and metrowest.

I think the high local construction cost is mostly due to land cost in the desirable areas. The prefab connect homes look decent in the pics, but the upgrades I want will probably add to psf - it is already 140psf for base model - + land, not much difference in cost.

[balor123]

Yes, inclusive of land price. Not sure how much its worth but I'd guess we paid $140k to builder for it and its worth about $235k now. I see plenty of teardowns in Arlington in that price range, the schools are good, and it's close to Boston so I wonder why there aren't more there? I see a few opportunities in other good towns around but mostly it seems to start at about $400k.

[JCK]

Good for you.

Congrats on the new home.

[balor123]

Thanks! Was my post not interesting or is the board just quiet? Not very many replies. I just read today that home prices are up 12% YoY but not to worry - they're still 20% below peak bubble in 2006 I would expect the recent market activity to be driving a lot of people to the board.

Anyway, as I mentioned, I really came back to provide some first hand experience which might help understand Boston and real estate markets in general better. I think prefab is interesting and have done a lot of research there so will start a separate post tonight to see if we can spark a more lively discussion.

[Renter-]

Balor,

Does anyone feel that Mortgage rates at 1950s levels has driven Boston RE from Bad to Insane.

What are the property taxes in austin area - I suspect Arlington prices are deflated due to higher property taxes - but, I may be wrong.

What happens to the Insane Boston Area R/E when Interest rates are rising?

The idea that today is the best time to buy because of low interest rates - makes no sense??????? I'm wrong regularly and often.

[GDMA]

I don't think it's the interest rates. Some industries are doing very well, plus international buyers, lots of strong cash/large % cash offers are likely.

Anecdotaly, the price growth and insane activity seems to be in a few select boston areas only, not the larger metrowest area at all. I've been eyeing properties in metrowest for a while, and not a single one of the property I've eyed have sold lol. All are sitting 200+ days.

My relatives on the other hand just sold a 5 yo boston area property for a 10% increase within 2 weeks above asking/cash/no contingency + lots of other offers including gushing letters. They then turned around and purchased another bigger property that was flipped for 15% increase in 2 years, doesn't look like any renovations was done at all...

There are the usual high paying, pretty secure jobs for those in the right field with the right education in the boston area and limited land. That's what's driving the price increase there. Outside...meh, plenty of houses waiting to be soaked up and plenty more land to build on.

[admin]

[admin]

Oh... and congrats balor123. I should have said that first. I would be up for a bubble hour, when my schedule cooperates. My current house hunt is unfortunately consuming way too much time at present, which might complicate that a bit for me, but we'll see.

- admin

[GDMA]

Rates have been at <4% for 2+ years. Also, rates are not low only for Boston area - most of MA have similar rates.

With my relative narrating tales of offers that failed because of stronger cash offers, it leads me to believe the upswing in Boston area prices is due to optimism about the economy. This may depend on which sector you work in, but the fields I work in and have friends in seem to be recovering and doing well. Touch wood.

[admin]

[balor123]

Rule of thumb is that every 1% change in interest rates equates to a 10% change in home prices. I haven't heard much about significant changes in income, though yes there has been changes in consumer confidence. Around here people seem to be rushing to buy while rates are still low and we had around the same increase YOY in "immune" neighborhoods. It makes sense in new areas where cost of construction remains fixed but not where there's a limited supply. Around here there's virtually no supply, with the most desirable areas having less than 2 weeks inventory. My neighborhood is 1-2mo I think.

Property taxes here are very high. Mine are about 2.3% with a 20% homestead exemption. I wouldn't qualify this year except they appraised before the home was complete so my taxes will be minimal anyway, so I hear. In other counties its as high as 2.7%. However, there's no state income tax in Texas and sales tax is only about 8%, higher than MA but not much. It looks to me like TX is actually pretty expensive to live in upper class housing and about the same as upper middle class (where I'm at). Those taxes are a big deal, as the carrying cost of a $600k home here is equivalent to about $800k - $900k home in MA (risk and other factors aside).

Note that these are central Austin prices and it's the most expensive city in the state, for good reason. I actually see it following the trajectory of Boston except it's in much worse shape. It's about 1/8 the size but already very expensive. Both are lively college towns, state capitols, have highly educated work forces, and very liberal politics. Construction has become extremely difficult over the last decade, as new rules have been put in place, in my case notably the "McMansion rule" (ok, my home is huge but it impacts much smaller homes too). Austin is home to the nation's largest urban preserve (40k acres, to protect a bird, 5min drive from me) composing part of a "green belt". There is no loop system, only 2 N/S highways. It'll stay this way until 2025 at least. History of how this happened [url=it hits homes 2500sf too!)]can be found here[/url]. I'm pretty liberal but these are hippie politics. Boston looks conservative to me.

I haven't booked my trip yet but I should be in town Aug 5 - 9, maybe downtown Arlington or somewhere else happening but central and accessible.

[balor123]

History of Austin highways. Link missing from before.

[Renter]

GDMA,

People truly beleive that Real Estate values aren't connected to Interest Rates!!!! Yes, there are Cash buyer - but, these are still not statistically meaningful. The overwhelming number of Home purchases are done with borrowed money. What happens when money stops being so cheap and you have to move in 4-5 years.

Regards.

[balor123]

There's a lot more cash transactions than you would think. One of my future neighbors just sold their house in such a deal. But its not as rosy as it may seem. I suspect much of that money is coming from other real estate transactions (downsizing or moving from more expensive part of country).