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Is Brookline going to fare better or worse?

 
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Joe Lo
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PostPosted: Thu May 11, 2006 4:15 am GMT    Post subject: Is Brookline going to fare better or worse? Reply with quote

Hi-

Relocating soon from down south (job transfer), and want to buy a nice place... Can afford about $750K on a 30-year fixed with 20% down, and would like to get a place with character in a nice neighborhood with good schools and good T access downtown. Doesn't need to be big. I Zillow'ed a few places that I liked in Brookline (near Washington Square), and asking is only about 6.5% annual price up from where they were 7-8 years ago. That is nothing like places where increases have been 15-20% over the past couple of years. Do you think that these really nice neighborhoods are likely to be hurt less than others with more recent construction? I looked around and still not so many for sale signs, inventory that I would consider doesn't seem to be that high... Anyhow, would be very interested to hear what you all think. I recognize that this might be not the best time to buy, but want to get moving over with and done and be in my house for 5-7 years.

Interested in your perspective.

Thanks,
J
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LongTime Bostonian
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PostPosted: Thu May 11, 2006 4:50 pm GMT    Post subject: Brookline Reply with quote

Brookline is a great town. The lower increase in value over the last couple of years may be because Brookline has always had a Premium to buy in.
I believe that the Premium for Brookline reduced the number of potential buyers - there aren't as many buyers who have $140,000 for a downpayment. The future value of a home in Brookline may depend on how much tighter lending standards get in the future. For anyone to buy a $700,000 home they need $700K in CASH or they need to find a Bank willing to loan the difference between the deposit and the Price of the house.
Find yourself a nice rental and find a investment advisor who can help you protect your cash from the ravages of inflation.
I think when you assess the cost of Porperty Taxes and the potential downside if Real Estate continues to get tough - you'll love renting.
Renting = More free time for family - no chores.
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Joe Lo
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PostPosted: Fri May 12, 2006 3:38 am GMT    Post subject: Ok but... Reply with quote

Let's just say that I'm willing to accept that I'll come out even... no financial upside to buying (you know, a buy vs. rent calculator says "it's too close to call"!). Let's just say that... How long do you think I'll need to stay in a house in a nice part of Brookline in order to come out even (e.g., eventual house price inflation covers CPI increases and my 7% transaction cost)? Seven years? Ten years?

Not just an academic question...

J
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geust
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PostPosted: Sat May 13, 2006 2:59 pm GMT    Post subject: 15-20 years if you buy now Reply with quote

go ahead and buy. you may be a boston realtor anyway. anyone moving from the south and buying in boston is a fool.
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Longtime Bostonian
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PostPosted: Sat May 13, 2006 7:12 pm GMT    Post subject: Brookline Reply with quote

The math is fairly self evident

Say you borrow $500,000 at 6.8% for 30 years=

Cost = Mortgage Payment/month = $3259.00

Add Property Taxes = $10,000= $880/month
Property Insurance= $3500/ yr= $280/ month

Maintainence= 3% of cost of Property/ year= $12,000year= $1000/ month

Monthly cost = $5,400 (This includes all the costs)

Obviously, the favorable treatment of Property Taxes+Interest will help reduce the pain. If you move in 5-7years and No one will pay $500,000 for the home - do you have $100,000-$200,000 reserves to pay off the Bank loan. If you do....go ahead and buy in Brookline.

What can you rent in Brookline for $3800-$4000/month????????????
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Rush
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PostPosted: Thu May 18, 2006 2:23 am GMT    Post subject: Brookline prices Reply with quote

Here is some data on Brookline prices from: http://rers.thewarrengroup.com/townstats/results.asp

Year Months 1-Family Condo All Sales
2006 Jan - Apr 969,500 483,750 535,500
2005 Jan - Dec 1,090,000 459,000 522,500
2004 Jan - Dec 975,000 425,000 479,000
2003 Jan - Dec 840,100 392,750 429,900
2002 Jan - Dec 775,000 370,000 410,000
2001 Jan - Dec 720,000 328,500 380,000
2000 Jan - Dec 700,000 300,000 355,000
1999 Jan - Dec 590,000 243,250 294,000
1998 Jan - Dec 540,000 208,000 240,200
1997 Jan - Dec 445,000 187,000 218,750
1996 Jan - Dec 405,500 172,000 215,000
1995 Jan - Dec 428,000 153,000 185,000
1994 Jan - Dec 354,125 148,000 184,000
1993 Jan - Dec 348,750 133,000 165,000
1992 Jan - Dec 320,000 133,000 159,500
1991 Jan - Dec 331,000 131,000 158,000
1990 Jan - Dec 371,500 155,500 180,000
1989 Jan - Dec 366,750 167,000 201,000
1988 Jan - Dec 375,000 167,000 199,000

This yields a 9.1% average annual increase in Brookline MSP for the last 10 years for SFHs. However, always remember that MSP for this small sample may not be particularly indicative of the potential return of a single propery e.g. your house. Notice the MSP went down in 1996, which was likely just an anomaly.

Regarding your broader question of whether holding a property for 5 years is likely to yield a positive return, anyone who gives you an answer is overly optimistic about their ability to predict the market. I do not take comfort in the real estate agents who say you will always do fine if you hold a property for 5 years. This is based on the assumption that recent history will predict the future and I think this is just wishful thinking or spin. There have been periods where local markets have been under water for periods much greater 5 years.

However, I do think intelligent commentators can make useful analyses of the market over the next 6 - 18 months. I am firmly in the camp that Brookline prices are headed down in the next 6- 18 months, easily 10-15%. Therefore, I would suggest renting for a year and then buying at $675k vs. $750k. BTW a $750k house will be pretty humble in that neighborhood and might not include a parking space.

Good luck. Wait to buy if at all possible.

Rush
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admin
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Posts: 1826
Location: Greater Boston

PostPosted: Thu May 18, 2006 2:56 am GMT    Post subject: Reply with quote

Thanks for digging up some hard numbers on this, Rush. I would have liked to have contributed more to this thread but have been pretty busy with other commitments lately.

I think the annual increase calculation may be off. That's actually an annualized increase of 6.1% rather than 9.1%. The annual increase gets multiplied by the previous value each year, whereas taking the average by dividing the total change by the number of years assumes that the increase gets added every year. For example, look at the change from 2004 to 2005. It's an 11.8% annual increase, but in comparison to the value from 1988 it would represent a 30.7% increase in an average calculated that way. Later years end up contributing disproportionally to the end result because the prices are higher then.

Here's the formula I used: EXP(LN(1,090,000/375,000)/18)

- admin
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Rush
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PostPosted: Fri May 19, 2006 2:26 pm GMT    Post subject: Reply with quote

Thanks for your response.

Actually, I think the difference in our calculations is because we used different time frames. Mine was for 10 years and used the average current price for 2006 (not technically correct but might be a reasonable estimate of 2006 average prices) as opposed to yours for 17 years (2005 - 1998 = 17, which I think should be in your denominator as opposed to 1Cool.

The formula I used for compound annual return is: =(1+"2006 price YTD"/'"1996 price")^1/"number of years"-1 or =(1+969,500/405,500)^1/10-1=9.1%

Just FYI, I am a financial analyst so I am pretty familiar with these calculations but I do make mistakes Smile
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Rush
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PostPosted: Fri May 19, 2006 2:30 pm GMT    Post subject: clarification Reply with quote

I looked at my post and was surprised that a combination of punctuation marks lead to a Cool emoticon instead of "18". I guess I should have checked the preview...
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admin
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Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston

PostPosted: Fri May 19, 2006 3:10 pm GMT    Post subject: Reply with quote

Rush,

You are correct, my apologies. I totally glossed over where you said that your number was for the most recent 10 years rather than the whole data set and the number that you gave was coincidentally close to what one would have gotten using the incorrect method on the whole data set. Indeed, when I use the 1996 and 2006 numbers and treat it as a 10 year period, my formula yields the same result as what you gave (once you subtract 1), so the formulas may very well be equivalent.

You are also right to point out my denominator was off by one - I originally had my calculation use the oldest and newest entries that you provided, but when I realized that the newest entry was only for a fraction of the year, I switched to the most recent full-year entry and forgot to adjust the total number of years.

Incidentally, I do think that there is are some minor tweaks I would suggest to what you have. First, (1+969,500/405,500)^(1/10)-1 gives me 13.0% rather than the 9.1% that you wrote. If I either leave the first 1 out or use the total change instead of the end price of 969,500, then I do indeed get 9.1% - e.g., (969,500/405,500)^(1/10)-1 yields 9.1%. I assume you did it that way when you made your own calculations and just made a transcription error in the post.

The other thing is that the 1996 and 2006 data points aren't a full 10 years apart. So that's either a 9.25 or 9.3333 year period, depending on whether April is inclusive. It doesn't make a huge difference, though.

Thanks,
- admin
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Rush
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PostPosted: Fri May 19, 2006 6:40 pm GMT    Post subject: Reply with quote

Oops, thanks for the correction. Yes, I should not have added "1+" in the formula.

As I mentioned in my post, I realize using year-to-date (YTD) data is not technically correct but I believe it is a reasonable (or high) proxy for the average 2006 whole year price, since prices seem to currently be dropping.

My favorite quote about finance estimates is:

"It is possible to be accurate or timely in estimates, but seldom both and often neither." Translation, I would rather have an estimate of 2006 than an actual 2005, particularly given 2005 was the peak year.
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admin
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Posts: 1826
Location: Greater Boston

PostPosted: Fri May 19, 2006 7:06 pm GMT    Post subject: Reply with quote

Quote:
As I mentioned in my post, I realize using year-to-date (YTD) data is not technically correct but I believe it is a reasonable (or high) proxy for the average 2006 whole year price, since prices seem to currently be dropping.


Yes, you did say that. I clearly need more coffee today. I agree that it is probably a reasonable to high proxy.

- admin
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