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Are We Headed for a Housing Slump in 2016?
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Are We Headed for a Housing Slump in 2016?
Definitely, across the globe, US & Greater Boston
100%
 100%  [ 1 ]
Will depend on global economic trends & next president
0%
 0%  [ 0 ]
Not in Greater Boston, we're immune to headwinds
0%
 0%  [ 0 ]
I don't care, going to buy anyway
0%
 0%  [ 0 ]
No way to tell, delaying homebuying till next year
0%
 0%  [ 0 ]
Other, share response below
0%
 0%  [ 0 ]
Other, would like to hear what others are saying offline
0%
 0%  [ 0 ]
Total Votes : 1

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mpr



Joined: 06 Jun 2009
Posts: 344

PostPosted: Fri Mar 18, 2016 2:48 pm GMT    Post subject: Reply with quote

@RealEstateCafe. Congratulations. You've made all the options in your poll silly.
What do people who are unhappy with Boston area high prices, and are predicting a price slump expect in terms of percentage decrease ? A 5% drop would probably only happen as a result of a recession, but that would hardly address most peoples' complaints about prices being 'ridiculous'.
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Optimus4
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PostPosted: Mon Mar 21, 2016 12:37 am GMT    Post subject: Reply with quote

mpr wrote:
@RealEstateCafe. Congratulations. You've made all the options in your poll silly.
What do people who are unhappy with Boston area high prices, and are predicting a price slump expect in terms of percentage decrease ? A 5% drop would probably only happen as a result of a recession, but that would hardly address most peoples' complaints about prices being 'ridiculous'.


I don't have a prediction. IMO I need to see at least a 25% drop for prices to become reasonable. I know this is unlikely in the near future.
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RennyD
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PostPosted: Mon Mar 21, 2016 5:46 pm GMT    Post subject: Reply with quote

I agree that economic uncertainty would keep people from moving up,
but shouldn't it also stabilize prices? People blame the housing inflation
on low interest rates. But interest rates have been this low or lower for
at least 4 years or so. Prices have gone up the whole time.
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admin
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Joined: 14 Jul 2005
Posts: 1803
Location: Greater Boston

PostPosted: Mon Mar 21, 2016 6:06 pm GMT    Post subject: Reply with quote

RennyD wrote:
I agree that economic uncertainty would keep people from moving up,
but shouldn't it also stabilize prices? People blame the housing inflation
on low interest rates. But interest rates have been this low or lower for
at least 4 years or so. Prices have gone up the whole time.


4 years or so corresponds rather well with the steady decline in inventory that has been occurring, and that may better explain the price increases. Super low interest rates are supporting prices, not necessarily driving increases anymore (though maybe they are - the effects might take awhile to play out, especially when inventory is low).

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RennyD
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PostPosted: Mon Mar 21, 2016 6:23 pm GMT    Post subject: Reply with quote

If economic uncertainty is keeping people from moving up (and choking inventory), it doesn't seem to be deterring first time buyers and wanabe's,
as evidenced by the bidding wars and high Open House activity.
I'm not trying to be contrarian. I'm just trying to understand.
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admin
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Joined: 14 Jul 2005
Posts: 1803
Location: Greater Boston

PostPosted: Mon Mar 21, 2016 6:32 pm GMT    Post subject: Reply with quote

RennyD wrote:
If economic uncertainty is keeping people from moving up (and choking inventory), it doesn't seem to be deterring first time buyers and wanabe's,
as evidenced by the bidding wars and high Open House activity.
I'm not trying to be contrarian. I'm just trying to understand.


One possible explanation is that those aren't independent subsets of people. I see the same people at different open houses frequently. In a 20 way bidding war, 19 of those people will not win and will likely be involved in some other bidding war too.

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PostPosted: Mon Mar 21, 2016 7:49 pm GMT    Post subject: Reply with quote

Quote:
People blame the housing inflation
on low interest rates. But interest rates have been this low or lower for
at least 4 years or so.


RennyD, this has a lot to do with human emotion and consumer behavior. And it is really not that hard to understand why home price goes up, and low inventory in the same time.
People are not in buying gear until economic condition turn better, simple as that.
When rate began to go down back in 2009, people waited for couple of years because 1. there was a lot of economic uncertainties back then, and 2. they were not sure when will the rate hits bottom, and
As the rates hit rock bottom around 2012 and 2013, economy also start to turn to a better side, that created first large group of fence jumpers in buying houses. Also the low rate environment create a lot of stagflation pressure in the economy in general(2014 2015). That was when you see the rent started to go up fast. When rent go up, it further drive up property price, as people start to see housing has potential positive return again. This is VERY IMPORTANT here, without the power of bargaining for higher rent by landlords, home price will not go up this fast. Also due to the same reason, there are a lot of buy and hold events in the housing market as well.
Then things start to get greedy (2015 to now) again, as people consider rent will keep going up. A lot of price bidding wars, people hold off selling hoping for better price. Folks who can't afford to trade up start to dump money into fixing existing houses, feeling the cost will be converted to equity of existing home. There are butterfly effects cross the whole system.
So home price inflation is kind of related to low rate, as low rate caused the current stagflational economic condition, which drive money into housing market again.

The FED suppose to raise rate 4 times this year, now it is reduced to 2 times. And they might reduce it again. This basically tell you that it wants the current stagflational condition prolong.
No solution yet, no prediction on when wind in housing market will turn yet. Just wait and see.
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Richthofen



Joined: 02 Apr 2014
Posts: 69

PostPosted: Tue Mar 22, 2016 1:39 am GMT    Post subject: Reply with quote

Anonymous wrote:

Also the low rate environment create a lot of stagflation pressure in the economy in general(2014 2015).


I have gone back and forth in my mind about whether we are experiencing stagflation. I think if we reported inflation like we did in the 1970s, we'd be cruising at 4%+ inflation at least. With OER replacing the home price component on the headline inflation number, reported inflation is much lower than it normally would be. Although, in the 1970s stagflation was accompanied by higher wages I think? Especially middle class wages which are basically being destroyed right now. Can we have runaway price inflation when such a large part of the economy is being excluded from increasing wages? We have no more strong unionized labor force to push for compensating wage increases. If we expect real stagflation its going to mean the standard of living is going to fall precipitously for most of America. And I guess that's why Trump is leading the polls.

If we are experiencing stagflation then what we are causing a price bubble in housing is really just inflation being funneled into one sector of the economy. If that's the case then all the 'buy now' rah-rah is actually correct. But given how high home prices are its almost impossible to save a large down payment because the down payment's purchasing power is eaten away faster than you can save for the more expensive house every year. And there's no interest being paid on cash balances so where do you save that down payment? Its especially painful because my hope was to buy a home and have it paid off by retirement. I'm 36 now so every year I wait because we can't afford anything worth buying is a year we are losing to the retirement race. At this point I might not own a home before 40.

I think people saying that 'hey its Boston/San Francisco/Denver/Seattle, real estate is going to keep going up' are discounting an exogenous event. I don't think service employees and young middle class families are going to stand this forever. They're not going to commute 1+ hr to Boston to make next to nothing. Something's gotta give.
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PostPosted: Tue Mar 22, 2016 2:16 pm GMT    Post subject: Reply with quote

Richthofen wrote:
I think people saying that 'hey its Boston/San Francisco/Denver/Seattle, real estate is going to keep going up' are discounting an exogenous event. I don't think service employees and young middle class families are going to stand this forever. They're not going to commute 1+ hr to Boston to make next to nothing. Something's gotta give.

Bingo. Who the fuck is going to drive an hour plus from, e.g., Bedford, to an $80K job in the city, all to be piss-poor with a $500K+ mortgage? How the hell does that make any sense at all? Let's say it's both parents who commute and they pull $160K pre-tax. They have 1 or 2 young kids, so that's $1,500-$4,000 a month in day care costs. How does this math work for them? It doesn't. And this is an *optimistic* scenario, where you have 2 reasonable incomes. What happens if both parents are grunts that slave away for $60K apiece? For context, my household income is over $250K, and I sure as shit don't feel like we are "well off". We're solidly middle class and can't afford anything but a run-down shit shack. Unless, of course, we want to be stupid about our finances and not save for retirement, not save for our kid's college, not have an emergency fund, etc.
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PostPosted: Tue Mar 22, 2016 3:12 pm GMT    Post subject: Reply with quote

richthofen,
you brought up a lot of good points in your reply. Thank you. I can only reply to couple I considered most interesting. hope it gives insight to everyone.

Quote:
Can we have runaway price inflation when such a large part of the economy is being excluded from increasing wages?

I used stagflation because I was lack of better term to use. the more accurate term should be 'inflation with stagnant salaries'. This is what drives most of us crazy these days. You got the same job, just pay the same or less; during the mean time, every essential element of quality life is getting expensive very fast. Housing, Healthcare, Education, Food. Oil(energy) should and could have been in the same boat, but we are suppressing oil price with our middle east ally to punish Russia and ISIS, and that turn out to be the best thing for regular folks for the past couple of years.
Inflation with stagnant salaries has lot to do with the way we 'stimulate' our economy since 2009. When the market flooded with liquidity, it eats away buying power of paper currency. unfortunately it takes time for the liquidity to converted to more job opportunities and higher salary for individuals, and yet it doesn't take much time for liquidity to convert to inflation, which unfortunately reflected on sectors that is less outsourcesive, yet very life quality essential. the gap between both conversion speed become the pain and anger on top of every one of us.

Quote:
But given how high home prices are its almost impossible to save a large down payment because the down payment's purchasing power is eaten away faster than you can save for the more expensive house every year.

This is why a lot of folks were screaming:"Price didn't drop in Boston during the housing downturn few years ago!" A lot of us couldn't benefit from the last housing downturn, because price of housing was not dropping like a stone in Boston back then. It was remaining flat in general, dipping a bit at the most. What really dropped was interest rate. Overall home price is lower in monthly payment term, when 30 year rate drop from 6% to 4%, you should save about $400 bucks in monthly payemnt. Yet if you don't have large cash amount as down payment, you can't get into the system to be benefited from the low rate. To add salt to the wound, QE jack up inflation quickly, before people recovered from economic downturn. So if you missed the housing bus because lack of down payment few years ago, you felt like you missed the bus forever now, with inflation eat up the buying power of your pitiful saving so quickly, it also drive up home price with same crazy speed. And the affordability gap has gone wider and wider.


Quote:
I don't think service employees and young middle class families are going to stand this forever.

Please en light me with what could service employees and young middle class families do beside take it as it is? It is really interesting to see which direction all these anger will burst toward eventually.
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Richthofen



Joined: 02 Apr 2014
Posts: 69

PostPosted: Thu Mar 24, 2016 12:27 am GMT    Post subject: Reply with quote

Anonymous wrote:
Please en light me with what could service employees and young middle class families do beside take it as it is? It is really interesting to see which direction all these anger will burst toward eventually.


I think the exogenous events I am thinking of are: Reintroduction of rent-control; affordable housing requirements being drastically re-written; removal of the mortgage interest deduction; etc. I don't discount political power of disenfranchised voters especially given the national election turmoil going on right now.

Here's a question though. How long can all these luxury condos/rentals remain vacant in these big developments. The Vox On Two development, all the apartments in the Fenway by the park now, the wasteland of unaffordable $3500 apartments in South Boston Waterfront... I know interest rates being so low means that these projects will float a lot longer than normal, but I can't imagine they are being rented to capacity. Some day we'll have to build non-luxury apartments.
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admin
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PostPosted: Thu Mar 24, 2016 2:45 pm GMT    Post subject: Reply with quote

Richthofen wrote:

I think the exogenous events I am thinking of are: Reintroduction of rent-control; affordable housing requirements being drastically re-written; removal of the mortgage interest deduction; etc. I don't discount political power of disenfranchised voters especially given the national election turmoil going on right now.


Here's another one: a trade war as promised by at least one presidential candidate, specifically targeting China. China's purchasing of US debt is one of the big reasons mortgage rates are so low - I wouldn't expect that to last if a trade war starts. A trade war would also probably send the US economy into a serious recession, in an optimistic scenario.

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PostPosted: Thu Mar 24, 2016 4:19 pm GMT    Post subject: Reply with quote

Quote:
Reintroduction of rent-control; affordable housing requirements being drastically re-written; removal of the mortgage interest deduction; etc. I don't discount political power of disenfranchised voters especially given the national election turmoil going on right now.

I am dead sure rent-control will not come back to Boston and or any city in our region ever. The reasoning is simple, the current house price runs up property tax, cities and towns are laughing ear to ear with all these extra income. Everyone know rent-control will hammer regional property price, and NO city and/or town officials will ever try anything near this type of financial suicidal move again.

Removal of mortgage interest deduction is a interesting one. Because government will never say no to more tax income, so it is very possible for this to happen down the road.
Now when government get greedy and needy and try this route, I can foresee 2 major side effects:
1. People are less willing to buy then rent, especially less willing to buy large and expensive houses. That will sure suppress home price, more on higher price tier.
2. existing home owners start to save money to try to pay off existing mortgage as soon as possible. This will restrict other kind of spending. one major spending currently that will get hammered with this will be home remodeling. Home Contractors will line up in front of food bank every day, hahaha.
This would be a bad thing to demand side economy, but will sure work to depress home price.


Those luxury condos are disaster waiting to happen. They will be the first tier to go bank owned when time comes. But no one know when there will be no more fool willing to buy them for the high price they asks for. All I can say is, please do not be a fool and buy into things that look and feel fancy, yet completely out of your affordability.
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