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Boston housing inventory finally higher than 1 year earlier

 
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admin
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Joined: 14 Jul 2005
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Location: Greater Boston

PostPosted: Wed May 14, 2014 8:42 pm GMT    Post subject: Boston housing inventory finally higher than 1 year earlier Reply with quote

As of Monday, May 12th, the inventory of homes for sale in the Boston Metro area has finally exceeded the inventory from the same time 1 year earlier. Low and declining inventory has been a prominent attribute of Boston, and many other markets, since 2012. Anemic inventory combined with anomalously low interest rates has created a terrible environment for buyers with scant options to select from and the need to outbid the other prospective buyers who are most ambivalent and/or oblivious to risk. Of these two pillars, the QE fueled mortgage rates{*} which sparked the frenzy disappeared in the second half of last year and only suffocated inventory remains. A year-over-year increase may signal the beginning of the end for this final pillar.

That said, the year-over-year increase in inventory was a paltry 0.5%. So Boston inventory went from being the worst ever to negligibly above the worst ever. Still, this was a first threshold that needed to be crossed before buyers could regain the ability to buy without being driven over roughshod.

{*} Note that while the super low mortgage rates of 2012 have been undone, current rates are still extremely low by historical comparison. The above was not a suggestion that the risk of a mortgage rate rise has been realized as there is still a substantial upside to mortgage rates. It was merely an observation that the start of the frenzy coincided perfectly with a major drop in rates and that the rates have now returned to roughly where they were pre-frenzy.

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Richthofen



Joined: 02 Apr 2014
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PostPosted: Thu May 15, 2014 2:03 am GMT    Post subject: Reply with quote

Interest rate increases don't matter when you're paying cash, which so many are.

Picture this: Of the inventory for sale out there, only half of it is actually available to real buyers, who plan to live in the homes. With such a large portion of cash buyers out there (investors or foreign nationals), the houses typically bought by first time homebuyers, such as fixer-uppers or smaller houses are already scooped up by the cash buyers. So the remaining stock for young couples to buy are houses too toast to renovate (not that it matters since inspections are being waved again) or too expensive relative to the amount of work they need or the size they are.

I'd say what makes it to MLS these days, the stuff not backroom-dealed before making it to the market, is the leftovers, the suckers bets. Everything under $500k inside the 128 belt is likely a candidate for a gut renovation. Everything over $500k is a 'tasteful remodel that won't last!' on the market for ~100 days.
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PostPosted: Thu May 15, 2014 2:09 am GMT    Post subject: Reply with quote

Richthofen wrote:
Interest rate increases don't matter when you're paying cash...


Sure they do. Lower rates mean lower opportunity cost.

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admin
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PostPosted: Thu May 15, 2014 1:50 pm GMT    Post subject: Reply with quote

admin wrote:
Richthofen wrote:
Interest rate increases don't matter when you're paying cash...


Sure they do. Lower rates mean lower opportunity cost.

- admin


To elaborate on one facet of this, investors who have buying for the rental income have been doing so because they are starved for yield. When interest rates rise, bond yields will rise, and the yield from a rental will look relatively less attractive. Not only will this remove many investors from the demand side, but if rates rise far enough, they will shift to the demand side and start selling instead. This would be a triple whammy to the market because you then have 1) yield optimizing investors no longer buying, 2) past investors now selling, and 3) higher mortgage rates reducing the leverage available to people who actually want to buy a home to live in.

The investor buy to rent trade has had a huge impact elsewhere in the country. I don't know what the impact has been in Boston - I don't think Blackstone has been a major player here as they have been elsewhere, but there may be smaller investors doing similar things.

I'll also point out that a "cash" buyer is only necessarily all cash at purchase time. An investor who finances after purchase can then use that money for another "all cash" purchase, and rinse and repeat. Higher rates add friction to that process too.

To avoid any confusion, the above were just examples and not exhaustive. Opportunity cost applies to all cash buyers, not just investors.

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PostPosted: Fri May 16, 2014 2:20 am GMT    Post subject: Reply with quote

> but there may be smaller investors doing similar things.

I agree with this because I know quite a few people who own multiple houses/condos that they rent out.
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balor123



Joined: 08 Mar 2008
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PostPosted: Fri May 16, 2014 3:06 am GMT    Post subject: Reply with quote

Quote:
Sure they do. Lower rates mean lower opportunity cost.


Not to mention price - and that's real cash! You can walk away from a loan, ethical or not and many people have done it. You can't walk away from a cash purchase.
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mpr



Joined: 06 Jun 2009
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PostPosted: Sat May 17, 2014 12:58 am GMT    Post subject: Reply with quote

I wouldn't read to much into this. Spring was late which probably caused people to delay listing somewhat, and you're now getting a rush of listings in the last few weeks. If inventory is still only at last years levels after the release of that pent up supply it isn't actually a great sign for buyers.
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PostPosted: Sat May 17, 2014 1:20 am GMT    Post subject: Reply with quote

mpr wrote:
I wouldn't read to much into this. Spring was late which probably caused people to delay listing somewhat, and you're now getting a rush of listings in the last few weeks. If inventory is still only at last years levels after the release of that pent up supply it isn't actually a great sign for buyers.


I agree that the endless winter is going to skew things and it is too early to view this as a good sign for buyers, it's just a first threshold that needed to be crossed before clearer signs come. However, the news isn't just that the inventory is now positive YOY. The YOY inventory change had been around -30%, has been steadily increasing, and continues to increase. That was actually the case before the endless winter hit. Look at the spike in inventory last fall (second graph down), which is anomalous with all other years. One could infer that the long winter actually delayed the positive YOY threshold being reached if you assume that the fall trend would have continued had the winter not been so tedious.

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Former Arlingtonian



Joined: 23 Oct 2013
Posts: 141

PostPosted: Mon May 19, 2014 10:56 am GMT    Post subject: People dabbling in Real estate Reply with quote

Everyone I know is convinced that the Housing bubble POP 1.0 was a once in a life time event. The bounce back in values seems to have convince most folks the R?E increases in value as a function of time passing.

Friends who own a second home as a rental don't connect the impact of interest rates with the value of real estate. A neighbor who recenty moved held on to their townhome because of the low interest rate he has on the home and is now renting it out.

I would agree it is great to have some one else pay off your mortgage on your rental.

But, some day this neighbor will have the home paid off, he will still be on the hook for property taxes, HOA fees, special assessments, and the income he receives from a rental will be taxed at his highest income tax bracket. It might be a lot easier to look into buying a REIT mutual fund, but in todays world it is considered cool to be a landlord.
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JCK



Joined: 15 Feb 2007
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PostPosted: Wed May 21, 2014 3:18 pm GMT    Post subject: Re: People dabbling in Real estate Reply with quote

Former Arlingtonian wrote:
But, some day this neighbor will have the home paid off, he will still be on the hook for property taxes, HOA fees, special assessments, and the income he receives from a rental will be taxed at his highest income tax bracket. It might be a lot easier to look into buying a REIT mutual fund, but in todays world it is considered cool to be a landlord.


Ha. This is just searching for reasons to be negative. When is mortgage is paid off, his rental income will greatly exceed his HOA and property taxes. If he's in a high tax bracket, that means he's making a lot of money. Not sure how that's a bad thing.

Worst case is that he can sell and put his money elsewhere. The poor sucker indeed.
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JCK



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PostPosted: Wed May 21, 2014 3:19 pm GMT    Post subject: Reply with quote

This market, by the way, is awful right now if you're trying to buy. Everything that's not horridly overpriced (based on current market) is underagreement within days.
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PostPosted: Thu May 22, 2014 1:11 pm GMT    Post subject: Reply with quote

JCK wrote:
This market, by the way, is awful right now if you're trying to buy. Everything that's not horridly overpriced (based on current market) is underagreement within days.


You also have to compete against other buyers playing Russian roulette with contingencies and agents exacerbating that.

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