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Boston & Urban Suburban Condo Market; in good shape!
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Condo



Joined: 28 Sep 2006
Posts: 50
Location: Boston

PostPosted: Thu Sep 28, 2006 4:18 pm GMT    Post subject: Boston & Urban Suburban Condo Market; in good shape! Reply with quote

There is no question the SFH market is leveling off, that is undeniable. However the Boston Condo market and urban suburban condominium market (Allston, Brighton, East Boston, Everett, Malden, Medford, Quincy, Somerville and Watertown) is very strong... Up 26% in 05'. Condos sales are fueled by three major demographics, young professionals, baby boomers, and new one: divorcees. This equals 36% of all Americans. Only one demographic is presently interested in SFH's ; young married couples with children looking for the suburban lifestyle.

Over the last several years I have observed very broad generalizations and articles regarding housing, many times referencing and including Boston incorrectly with other very dissimilar national markets based on different fundamentals. Again, locally, the suburban SFH market and the downtown Boston Condo market, also dissimilar in fundamentals, have been included in local and national housing trend stories which tends to cloud the focus and what is the accurate overview in respective markets. Simply stated, there is a need for better analysis of the current and historical data to provide a clearer understanding why NEW trends are occurring and the factors affecting the Boston and surrounding area condo market.

Many negative occurrences took place while the Boston market was on a step incline from 2000-2005. (9/11, Recession of 01, Stock Market instability, Two U.S Wars, Corporate Governance, Increasing Unemployment, and a flattened Boston commercial real estate market. Presently there are many positive factor ( Positive Job growth, still historically low interest rates, freezing of the federal fund rate, falling LIBOR, a strong basic supply and demand ratio, and the increased demographic number talked about at the beginning of this page).

Another point, not one article or person seems to have any sort of logical rebuttal too .....Why would all of these huge developers be starting construction on massive condo projects, dumping hundreds of millions of dollars into this "failing condo market". To List a few: Joe Fallon / South Boston Waterfront, Intercontinental / 500 Atlantic Ave, Extell / East Cambridge, Trammell Crow / Harbor View, Goldman / Warf District, Samuels Brothers / 1330 Boylston and the Columbus Center Project.

Higher end condos in Boston are still on the rise (1.5 mill +, especially units over 3mill). The data does not even take into consideration "pre-sales" at the Intercontinental and Mandarin Oriental (sold out).

It seems to be the negative bombardment of the media that places fear into folks looking to buy condos in Boston and the surrounding areas. The Fundamentals are strong, we have just never seen conditions such as the ones we are presently living in. Just a few thoughts ....I have much data to support my argument.
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admin
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PostPosted: Thu Sep 28, 2006 5:14 pm GMT    Post subject: Reply with quote

Quote:
However the Boston Condo market and urban suburban condominium market (Allston, Brighton, East Boston, Everett, Malden, Medford, Quincy, Somerville and Watertown) is very strong... Up 26% in 05'.


I'm afraid I would draw the opposite conclusion from a 26% gain in prices in 2005. That makes the market more precarious, not stronger. Incomes and rents were relatively stagnant over the same period and would not justify such gains.

Quote:
Condos sales are fueled by three major demographics, young professionals, baby boomers, and new one: divorcees. This equals 36% of all Americans. Only one demographic is presently interested in SFH's ; young married couples with children looking for the suburban lifestyle.


Given that the home ownership rate in 2005 was 68.9%, this means that 31.1% did not own. Absent additional information, that could account for almost all of the people in the demographics you pointed out. It would be interesting to see what the correlation is - I would expect those demographics are comprised of a disproportionate amount of renters, but to what extent, I do not know.

Quote:
Another point, not one article or person seems to have any sort of logical rebuttal too .....Why would all of these huge developers be starting construction on massive condo projects, dumping hundreds of millions of dollars into this "failing condo market".


One answer could be psychology. Why did similarly large companies pour much greater quantities of money into tech stocks (for their pensions, etc.) during the dot-com bubble if the market was so dangerous? The reason is that past price gains rather than actual fundamentals were used to predict future performance. Robert Shiller gives a much more thorough answer to the general question of why people participate in bubbles in his book Irrational Exuberance.

Quote:
The Fundamentals are strong, we have just never seen conditions such as the ones we are presently living in. Just a few thoughts ....I have much data to support my argument.


Please share some of the data that demonstrates strong fundamentals. My current take on how to analyze things is that the two predominant fundamentals are equivalent rents and income, and I believe those have both been relatively flat since 2000 (though I could be mistaken). I would consider rent the more important of the two because the intrinsic value of a property is the present discounted value of rent you could command from it, minus expenses.

You are right that this site is focused primarily on single family homes. There was, however, one particular thread where a poster was looking into buying a condo and we went through the numbers in some detail. It turned out to be cheaper to rent, which leads me to ask how do the fundamentals justify the price in that case?

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Condo



Joined: 28 Sep 2006
Posts: 50
Location: Boston

PostPosted: Thu Sep 28, 2006 11:09 pm GMT    Post subject: Reply with quote

Thanks for the Private Reply,

"I do see your point about the single family home market casting a shadow
over the condo market. The monthly reports posted to the site do
mention that the data is for single family homes - there is no attempt
to mislead. You are also very welcome to make your case for the condo
market on the site." -Admin

I will take your points one at a time.

1.) I should have been more clear, this is a 26% increase in Condo sales in the Urban Suburban Emerging Market. Many of the actual sale prices are lower than previous years due to the dissimilar properties (SFH, Multy Family Homes Vs. Condos). So, as you can imagine, this effects the overall median prices in said neighborhoods. Again, a misleading figure when a journalist reports such statistics in a widely read publication, with no understanding or explanation of why.

2.) 68.9% may be true, which is not the point I am trying to make. Many of these folks are down sizing from SFH's, or divorced couples both looking for a condo. The philosophy behind it is obvious; folks do not want to deal with maintenance issues, a huge house to clean, commuting, large yard and the various separate bills / expenses that go along with singe family home ownership. There is a huge influx of divorced individuals in the last few years looking for a more urban, active, simpler, hassle free way of life. The challenge we now face is folks pulling the trigger on selling their house for what the present day value is. However, there is an influx of folks every weekend at condo developments that are ready and willing.

3.)I have to respectfully disagree with psychology rebuttal to my question of why there are so many large scale development just underway in and around Boston. The comparison to the dot.com bubble is nothing like what we are experiencing. That drop off happened relatively quickly. Folks in Boston have been talking about the local "Bubble Bursting" for years now. These huge developers did not get into the business yesterday, they have been reading all the negative publicity for just as many years as we have. they look at the fundamentals, trends and demographics of the housing market. These companies could have pulled the plug on many of these developments as recently as just 2 or 3 weeks ago. They choose not too for many of the reasons I have mentioned. Its my thought that folks are terrified of a trend they have never seen before, because they do not understand it..... it must be bad. Every down turn in the last 30 years was coupled with some other major economic issue ...stock market crash, savings and loan scandal, 16% interest rates, ect. If you can tell me what major economic disaster is presently taking place; please share.

4.) Please see link for extensive data. An Urban Suburban Emerging Market report will be out shortly, which you will also be able to find here.
http://www.otisahearn.com/marketstudies/2006_midyearreport.pdf
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PostPosted: Fri Sep 29, 2006 1:49 pm GMT    Post subject: Reply with quote

Quote:
1.) I should have been more clear, this is a 26% increase in Condo sales in the Urban Suburban Emerging Market.


OK, thanks for clarifying.

Quote:
2.) 68.9% may be true, which is not the point I am trying to make. Many of these folks are down sizing from SFH's, or divorced couples both looking for a condo. The philosophy behind it is obvious; folks do not want to deal with maintenance issues, a huge house to clean, commuting, large yard and the various separate bills / expenses that go along with singe family home ownership.


Renting will achieve all of those goals as well, and my point was that I would expect that for people in the demographics you mentioned, there would be a higher than usual proportion of renters. This isn't to say that you are wrong in your observation of who makes up the target market, just that I don't think that all 36% of those Americans you identified are interested in buying.

Quote:
3.)I have to respectfully disagree with psychology rebuttal to my question of why there are so many large scale development just underway in and around Boston.


That's fine, I was just offering up a hypothetical logical rebuttal. Proving or disproving a psychological motivation would require a much different type of study than I have seen applied to analysis of the real estate market (there are some studies like this of other markets in Irrational Exuberance).

Quote:
4.) Please see link for extensive data. An Urban Suburban Emerging Market report will be out shortly, which you will also be able to find here.
http://www.otisahearn.com/marketstudies/2006_midyearreport.pdf


Thanks for the data.

The question that I have about the report, and more generally if that isn't applicable, is what do you consider to be the fundamentals that support the current level of condo prices? Also, are the prices supported by current incomes and current rents and how does the current relationship compare with historical data? I did search the report and didn't find "income" or "rent" anywhere in it. I do realize that the buyer affordability section is still in progress, so perhaps such data will eventually be included there.

Thanks,
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BillK
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PostPosted: Fri Sep 29, 2006 2:50 pm GMT    Post subject: Dear Condo - Cheap money and Developers Reply with quote

Dear Condo,

Have you notice that construction is booming in all segments of the economy. What drives this? The availability of cheap money and willing investors?
Real Estate Developers - build until they run out of money or file for bankruptcy. Think of Donald Trump - (I don't like is tactics) how many times has he filed for bankruptcy.

Real Estate developers pay their key executives very well and they are willing to risk going out of business. They make enough money (in salary, bonuses- etc) during the boom years. They don't worry about market dynamics as much because often they are playing with other peoples money.

I think Condos are a particularly bad investment when Inflation is rising (like now) because all costs get passed on to the Condo owners by the Condo Association. A single family the owner can choose to put off major expenditures or repairs during times of low/no income. Condo associations require that you pay the fees on time or they will foreclose on you and force you to sell when the market may be weak.

What ever choices you make passed on your false assumptions - I hope they work out for you. God knows sometimes I'm wrong.
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westsidebubble
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PostPosted: Fri Sep 29, 2006 3:07 pm GMT    Post subject: wrong Reply with quote

What?

Median Condo sales price for August was down 3.3% from August of 2005 and up only 1.4% from August of 2004. Adjusted for inflation (not to mention stagnant wage growth), the condo market is anything but strong.

Do you personally know of anyone who bought a condo in the last 2 years, has not improved/invested money in it and has sold at a higher price in the last few months? I'm guessing they are few and far between.

I am selling a condo currently and we are pricing it at 2004 levels because we want an offer (and it is not a "high-end" condo). We'll see if we get any.

I feel like the original post came from an alternate universe.

If September median prices for condos are up over 2005, I will be amazed.
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Condo



Joined: 28 Sep 2006
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Location: Boston

PostPosted: Sat Sep 30, 2006 12:18 am GMT    Post subject: Reply with quote

Westsidebubble,
With a 3.3% you must be reading the Globe. It is difficult to gauge the true figures until everything is registered, which will be a few month out since there is a lag. Furthermore, to truly analyze the data you must drill into neighborhood sales, unit types and similarities. There is no question that condos are staying on the market for longer than they did a year ago. Prospective buyers, which there are many in the down town market, seem to be hesitant in pulling the trigger. Seemingly these people are waiting on some sort of sudden plunge in prices, some unknown factor, to out of the blue, suck the market down an unknown percentage. It's very strange to see folks awaiting an unknown occurrence. The biggest problem is the lack of a sense of urgency. The negative publicity has injected buyers with a fear of the unknown ....again, people fear what they have never experienced. A new trend in the market.

I know plenty of people who have purchased in the last two years. If you are referring to investors intending to flip units to make a huge profit .... you are correct, this is not the market for that. I'm comfortable with that.

2004 price! Great.....2004 was a great year. If you bought in 04 you are in good shape, anytime prior to 04' you are in better shape. Folks should remember not to be greedy when looking to sell there home. I wish you the best in selling you condo.
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Condo



Joined: 28 Sep 2006
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PostPosted: Sat Sep 30, 2006 12:49 am GMT    Post subject: Reply with quote

BillK,
I would say this is more of a psychological rebuttal, so it's certainly difficult to know the true answer. But it seems to me that you are insinuating that developers don't care if they, or the companies they work for, go bankrupt due to their enormous wealth. If I am interpreting you comments correctly, you believe they could care less about the reputations they have, in most cases, worked a lifetime assembling. I would love to tell that to guys like Bruce Mennin, Sunny Khan, Joe Fallon, Norman Radow, Tony Goldman, Gary Barnett and Brian Fallon (no relation to Joe) ...all high powered developers involved in large Boston projects. Actually, I probably would not bring that up in conversation.

You are saying condos are a particularly bad investment due to the fees passed along to home owners? I live in a condo, I just received a $402 assessment for unforeseen electric budget overruns last year. I understand that deregulation last January inflated all electric costs. Are you telling me folks living on other property types, like a SFH, did not have to pay more for their electricity??? You can put off paying major expenditures? I just want to understand this properly. You live in a single family home, your hot water heater blows..... you don't have to pay to replace it if you don't feel like it? Your roof leaks..... you don't have to fix it? Your basement floods .... you ignore it? Your septic tank overflows ....and you look the other way?

Also, if you pay your condo fees late ..... you most certainly are not foreclosed upon. You may get taken to court by the association for sever delinquency, or non payment. ....but you most certainly do not get foreclosed upon.
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BillK
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PostPosted: Sun Oct 01, 2006 5:26 am GMT    Post subject: Real Estate Cycles - Developer Mind set Reply with quote

Condo,

You are correct - I exaggerated regarding foreclosure for non-payment of Condo fees - my error. Going to court with a Condo associaton is not pleasant and requires extra cash.
All the gentlemen names you offered I'm sure have the very best in mind for Boston and their pocket books.
These men all professionals and they can't afford to ever be anything but bullish on Real Estate (this is what makes them great and their achilles heal).

They are all phenomenal sales men and business men - the world needs salemen - they push the envelope and leave us with Land mark buildings - but, there is usually a corresponding trade off.

Empire State Building - completed in 1931 and was called the Empty State Building for ten years or longer after it was completed - the hubris of the 1920s help the Real Estate sales men sell the project.

The World Trade Towers, NY, NY completed in 1973 - did you know there was a Tech Stock bubble in the 1960s and the last Bull market until 1982. The World Trade Towers depressed the Commercial Real Estate for Manhatten through out the 1970s and wasn't a commercial success until the mid 1990s.

There has never been a bull Real Estate market that wasn't followed by a Bearish Real Estate Market - its how economic cycles work.

Walk through Boston at the majority of the beautiful/best buildings correspond with Bull stock markets - For example....
Boston Public Library, Ames Bldg (first sky scraper?) -1885-1990-followed by depressionary period
Custom House Tower, Filenes- 1915 - followed by War War I
1925-1931 followed by depression
The Prudential, John Hancock Tower -1960s-1972/73, followed by Inflation/stagflation

We both feel very strongly about our points of view - I hope you are right and not me.
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Condo



Joined: 28 Sep 2006
Posts: 50
Location: Boston

PostPosted: Sun Oct 01, 2006 6:07 pm GMT    Post subject: Fundamentals Reply with quote

Admin,
Speaking to your question of what I believe to be strong fundamentals for the condominium market.

The demand drivers are far different than at any other time prior to 2004. The huge demographic trend of empty nesters / baby boomers (born between 1946-64) , is in the early stages, and many are returning to a more urban environment in or closer to the city, as primary residences. Young professionals both couples and singles, as well as divorcees (which has shown up in great numbers over the last few years). These folks want, or in some instances have to be, in or close to downtown Boston. These people are looking for a more efficient lifestyle as it relates to employment and convenience to leisure activities. This market is predominantly owner occupied, and historically has offered limited new, attractive rental options. Values historically hold much better in owner occupied markets as opposed to 2nd home markets. This is very fundamental. If someone needs to sell a home or is in need of improving cash flow, the 2nd, or vacation home is the first to go.

In the downtown market there is presently 5 months of inventory, up from 3.2 months in Q4, 2003. Many experts believe that under 6 moths is ideal. This is a great fundamental as it relates to supply and demand. Other positive fundamental without going into great detail. Positive job growth, still historically low interest rates, again, basic strong demand, T-bill on the decline (lowest level since June), federal fund rate is holding, fuel prices leveling, consumer spending on the incline and the economy seems to be showing signs of moderate improvement.

Conversely, while the housing market was shooting up from 2000-2005 many negative fundamental were taking place: 9/11, recession of 01', stock market instability, 2 wars, corporate governance ( ex -Enron, Tyco), unemployment rising and a softened commercial RE market in Boston to name a few.

I believe this is what you seeking.
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Condo



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PostPosted: Sun Oct 01, 2006 6:45 pm GMT    Post subject: Residential vs. Commercial???? Reply with quote

BillK,
You are talking purely commercial RE in your last reply. I'm not sure how to reply, as it is a completely different topic, and I am not well versed in commercial markets. For example, commercial RE was struggling in Boston around 2002 while the Condo marking was sharply increasing.
Condo
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PostPosted: Mon Oct 02, 2006 3:03 pm GMT    Post subject: Reply with quote

Condo,

Thanks for your response.

I would consider income and rents to be the core fundamentals and the most important factors in determining property values. While the factors that you raised to are important, I would interpret their effect as secondary. Incomes are directly tied to property values because they correlate with how much can be made by living in a particular location. Rents correlate directly with much you could make directly from a property by owning in a particular location.

Most of the factors you listed apply to single family homes as well as condos (e.g., interest rates and fuel prices). They clearly haven't been sufficient to sustain the record setting prices of single family homes in the area given the current downtrend. My take on it is that this is due to lack of support from incomes and rents. For the same prognosis to not apply to the condo market, there would need to be something substantially different and strong enough to overshadow the influence of income and rents.

The major difference which you are promoting is a demographic shift. I have heard this before but haven't actually seen government data which backs it up. This isn't to say that it doesn't exist - I just haven't looked for it. Can you point out some references that put numbers on these demographic trends within the Boston area and put them in a historical context? The population in Massachusetts has been declining for awhile now and it would be interesting to see to what extent certain demographics may be bucking the trend.

Your assertion that there is a lack of good rentals in Boston surprised me as I have personally seen some nice places for rent in the Back Bay and Beacon Hill. Do you have references which compare rentals and condos in Boston and demonstrate a scarcity of equivalent rentals? I'm not saying that you are wrong, just that my personal observations would have suggested otherwise. Also, wouldn't a scarcity of rentals drive up rental prices?

Thanks,
- admin
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Sarum80



Joined: 25 May 2006
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PostPosted: Tue Oct 03, 2006 5:21 pm GMT    Post subject: Data Reply with quote

Condo,

I would love to see your data. I have no numbers to back me up but just walking around Charlestown (my target area) I see a ton of places for sale and have seen numerous price drops. Just looking at Boston Homes just about every other ad has reduced slapped on it. Again I have no numbers to back me up so all of this anecdotal.

I also have one additional question. Do you have any concern about the new projects in that are being built in the area absorbing all the demand that you are seeing? ie Northpoint, the new one down by the Tavern on the Water just to mention two in Charlestown.

Thanks for your time.
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Sarum80



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PostPosted: Tue Oct 03, 2006 5:23 pm GMT    Post subject: My bad Reply with quote

Condo,

Sorry I missed the link in the previous post.
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Condo



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PostPosted: Tue Oct 03, 2006 9:12 pm GMT    Post subject: Charlestown and E Cambridge Reply with quote

Sarum,
Speaking from a developers point of view, they have been offering incentives for years, they just have not been advertising them as they now do.
Harbor View in the Charlestown Navy Yard, a Trammell Crow development, is a spectacular project with fantastic floor plans, many great views and a great finish package. Units start from the 300's and top off around 2mill. Apparently they have 12 units under reservation or P&S, had 140+ Brokers show up to their Broker Open House ( a huge turn out), have a buyer registration list toping 300 people (which shows tremendous interest) and average 25 people at open houses during the weekend. This all in the first month, as they opened in late Sept. That is great activity in any market.

Sierra and Tango in the NorthPoint Development is not yielding the same level of success, but that is project specific and not market specific. I don't know the details of sales or traffic, but I do know they have reserved units, just not sure the amount. The biggest obstacle they are facing is buyers not wanting to live in a construction site for the next ten years, as overall, that is a huge project consisting of retail, commercial (biotech research and development), a new T station and additional residential. The project you see at the corner of the Gilmore Bridge and O'Brian highway is an Archston property; rental.
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