bostonbubble.com

[Former Arlingtonian]

Lets look at the over leverage that has happened in Lexington. At some point we will hit the end of the epic indulgence in mortgage debt.

It is always illuminating to look at data samples in a crazy real estate zip code to understand the insane debt people have taken on.

7 Peachtree is on the market for $1.739 Million. This property last sold in June 2013 for $600,000. The buyers (must be builders) took out a Mortgage for the $600K home of $938,000.

150 East Street - Lexington is for sale for $3.23 Million, it was first put on the market in October 2011 for $2.92 Million, it has a mortgage of $1.050 Million, its got to be getting painful paying on a mortgage of $1 Million and property taxes of $20K-$30K.

How about 39 Robinson which is available for $3.1 Million, current mortgage $1.5 Million, the owners old mortgage was $890K, again a reminder that everyone is upping their Debt exposure as interest rates fall based on property values that are supported by low interest rates.

10 Alcott Rd can be bought for $2.725 Million, currently has a Mortgage of $1.637 Million, in April 2013 it was listed for $2 Million, then it was selling and this lead to the decision to raise the price to $2.725.

[donaka]

Lexington is hot market because of school and well paid immigrants. Price didn't went down much after bubble burst and came roaring back to new highs.

[admin]

[Former Arlingtonian]

Sorry, but you clearly don't understand how utlra low Mortgage rates have forced up prices everywhere! Yes, Lexington draws more well-educated fols with higher incomes that can service even greater Mortgage Debt.

This is not a wise move - the super long Bull market in Bonds which means interest rates have been falling since 1980s. This has made people believe that Lexington homes are increasing with time and income, but a greater impact is during the last 12 months it was the cheapest time to borrow money.

Look at this picture- look at how Mortgage rates have collapsed.
THAT IS WHAT IS DRIVING HOUSE PRICES in NICE towns and lousy towns (people borrow massively in nice towns)

[admin]

[Former Arlingtonian]

Admin,

I think we are in complete agreement.

People have correlated that prices are going up over time and will continue to go up. They don't appreciate the impact the ultra low had and they are paying based on price action only possible because of ultra low mortgage rates.

It takes people time to adjust to a world where interest rates/mortgage rates are always higher. When you have grown up in a world where real estate always gets more and more expensive you come to think you know why.

[optimus]

Inventory in Boston keeps dropping too so prices are likely to stay elevated.

[admin]

[Former Arlingtonian]

Optimus,

Boston is not unique - do a little research on any major metro area. Prices elevated because of tight shorter term inventory.

Watch House Hunters - every person looking to buy has at least 1-3 empty homes to look at....this is very unusual. When my wife and I bought a home in 1999 we didn't find a single home to look at that was empty and now that the market is the tightest every people can find homes for sale that are empty!

[Guest]

House Hunters isn't real. They always pick the empty house because they're already under contract (or even closed) with the property before they start filming. The previous owner was probably still residing in the house when the homebuyer toured the house for real the first time.
I think Property Virgins and My First Place are more real since they don't always end in a sale.

[Former Arlingtonian]

Guest,

House Hunters isn't real - we are in complete agreement.

But, House hunters isn't generating empty houses for the show, all the empty houses are a side effect of the massive build up in housing inventory during the housing bubble. In the 1990s it was almost impossible to find a empty home.

Take a look in the Boston area and you'll be able to look at lots of homes that are empty. The Inventory shortfall is an illusion!

kind regards.

[CL]

Former Arlingtonian - just because those mortgage numbers are big does not mean it is over-leveraged.

7 Peachtree is on the market for $1.739 Million, mortgage of $938,000 -
53% mortgage ratio

150 East Street, Lexington is for sale for $3.23 Million, it has a mortgage of $1.050 Million -
32.5% mortgage ratio

39 Robinson which is available for $3.1 Million, current mortgage $1.5 Million -
48% mortgage ratio

10 Alcott Rd can be bought for $2.725 Million, currently has a Mortgage of $1.637 Million -
60% mortgage ratio

With leverage ranging from 30%-60%, even a 25% price hit won't make this bunch of houses under water. As for monthly payment, a $1million mortgage at current rate takes around $185000 annual household income to service (assuming 1mil mortgage, 3.75% 30yr fixed, 30% of gross salary). Not a low salary, but when you consider an average doctor typically earns from 200-400K a year (from family doctor to specialist), it is not unreachable ground. Maybe not average folks, but for quite a lot of people, it's well within reach.

In short, I don't think these mortgages are necessarily over-leveraged.

[Former Arlingtonian]

CL,

I respectfully disagree. You are doing the standard math that works for the 30 years when Mortgage rates and Interest rates are falling.

As the cost of borrowing rises - the amount of money even wealthy people will be interested in borrowing will fall!

There is a done of high end property on the market- for example, here is a $2.339 valued property, owned by the Dean of Harvard Business School, that can be rented for $10,000 month. It hardly makes sense to pour Millions of dollars into a depreciating asset like an old house when you can rent it for $10,000 per month.
The Dean was trying to sell it - but, recently pulled it off the market and is trying to rent it out.
http://www.weichert.com/48562418/

Perhaps I'll be wrong - but, there is clearly a huge supply of luxury real estate for sale in Greater Boston.

kind regards,

[CL]

Former Arlingtonian -

"I respectfully disagree. You are doing the standard math that works for the 30 years when Mortgage rates and Interest rates are falling."

I am doing the math for 30 year fixed rate mortgage. The affordability of these mortgage does not change even when new issuance changes. When interest rate rises, the mortgage these properties hold will stay the same. That's actually one of the few valuable perks US homeowners have compared to rest of the world.

"As the cost of borrowing rises - the amount of money even wealthy people will be interested in borrowing will fall!"

True, but that again does not mean the mortgages of these properties will suddenly become "over-leveraged", as the rate is fixed. If anything, if you believe interest rate and inflation returns in full force, these fixed rate mortgages will look like a bargain, as long as they can service it (which seems a safe bet since they have plenty of equities built in). Imagine your saving account pays you 6% interest while you hold a 3.5% mortgage.

"Perhaps I'll be wrong - but, there is clearly a huge supply of luxury real estate for sale in Greater Boston"

Is there any inventory data and support your statement?

[Former Arlingtonian]

Cl,
Here is some of it....
http://www.luxuryboston.com/SearchResults.htm?min=1600&max=&beds=&baths=&rst=1&type=RN

Regards,
Bill