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Mark Hanson: A Housing Mega-Bubble No Doubt. It's not differ

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Joined: 14 Jul 2007
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Location: Greater Boston

PostPosted: Fri Oct 30, 2015 7:38 pm GMT    Post subject: Mark Hanson: A Housing Mega-Bubble No Doubt. It's not differ Reply with quote

Use this forum thread to discuss the following link.

Description: Mark Hanson: A Housing Mega-Bubble No Doubt. It's not different this time...

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Joined: 22 Oct 2015
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Location: Wakefield, MA

PostPosted: Mon Nov 09, 2015 9:49 pm GMT    Post subject: The national picture does not resemble Boston Reply with quote

Mark Hanson's blog is interesting, but this particular piece is looking at national data and San Francisco market data. How does Boston's market relate to this?

In 2006, Boston was already starting to turn downward, ahead of other markets. The downturn to 2010 affected low quality properties more than properties in good repair and in good locations. The high quality properties had a much less severe downturn than high quality properties in other parts of the country.

Today, my observation is that the bubble is more geographically limited than the 2006 bubble. Consider the ratio of prices, for properties that are otherwise comparable, in Cambridge versus a humdrum inner suburb (e.g. Wakefield). The "Cambridge premium" today is higher than it was in 2006. The bubble is more focused on the elite locations that it was last time.

I don't dispute Mark Hanson's research, but the housing market in Boston does not resemble other markets or the national average. Our market is much less "efficient" in that location premium isn't justified by practical factors such as commute times and school quality. Location premium is to a greater extent fueled by new buyers herding into the elite towns.

As a result, I think the downturn will affect the elite towns more severely than the rest. High quality properties in humdrum locations might not be affected much at all, because they haven't had as much upside.

Only if the nation experiences another credit crisis will the housing bubble collapse across the whole metro area.
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Joined: 14 Jul 2005
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PostPosted: Tue Nov 10, 2015 2:07 pm GMT    Post subject: Reply with quote

You're right that the piece isn't specific to Boston. I posted the link because it's of national interest. That said, several of Mr. Hanson's points are applicable to at least the "elite" Boston towns. In particular:

  • Prices for all houses extrapolated from a "narrow and shallow stream of a few dumb money buyers." (I'd say in addition to "dumb money," some buyers simply have money to burn or are prepared to eat a loss.)
  • "To believe this isn't a bubble is to believe that... interest rates will keep falling 1% per year going forward, which would lend an element of support to prices."

I suspect that both low inventory and ultra low mortgage rates are single points of failure for the "elite" towns. The shallow stream of buyers may not be applicable to the "humdrum" suburbs as you noted, which would explain why they are less inflated now and potentially more insulated from another decline. I expect they are still dependent on historically low mortgage rates, though.

I would add that many other types of crises could lead to broader declines. It wouldn't need to be another credit crisis per se.

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