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Potential purchase scenario - comments?
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kdog



Joined: 03 Jan 2007
Posts: 7

PostPosted: Thu Jan 04, 2007 3:06 pm GMT    Post subject: Potential purchase scenario - comments? Reply with quote

New to the board - been trying to educate myself as much as possible about the current market and where things are headed... interested in taking advantage of the slow-down to get into the housing market, but not sure how long to wait.

My wife and I have been looking at a townhome (half a two-family) in the greater Boston area. It came on the market in the summer of '06 at 579k (the other side of the building sold in the summer of '05 (peak) for 615k. Since coming on the market, the townhouse asking price dropped to 529k. We put a low-ball bid on the place - 475k to see what might happen. After a month of back and forth, with us being stubborn and not moving, the sellers have come down to 490k. I expect they'll eventually get down to our offer price given the slow market.

My question is whether this is potentially a good deal or not. The sellers already bought a home in the burbs and moved last summer; they are anxious to sell. The potential selling price is at a significant discount from '05 prices (17 percent or so). My feeling is that if we can buy below value we can absorb further declines in the market as long as they are relatively small... what I don't understand is how likely this correction is going to continue for.

My relatively naive prediction is that depreciation will continue through the spring and then stabilize, but then housing values will not appreciate any faster than inflation over the next decade or so. That makes home buying not much of an investment but simply a place to live... What's the best way to take advantage of this market?
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PostPosted: Thu Jan 04, 2007 5:45 pm GMT    Post subject: Reply with quote

"What's the best way to take advantage of this market?"

ANSWER: WAIT.
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Thu Jan 04, 2007 6:51 pm GMT    Post subject: lot of money for 1/2 a house Reply with quote

There may be a reason why that guy is moving to the burbs. Think about your time horizon and where you want to raise your kids. If you're upside down you might get stuck there. I don't know where you are as some densely populated areas are fine.

You're talking a lot of money. Step back from the whole $619 and open your MLS search to some of the surrounding areas. $475k can buy a lot of house.

People who bought condos near the city wanted to live their younger post-grad years near the pulse of the City. Once they heard of a few break-ins and saw some MCAS scores in the city schools, they want to raise their kids in the suburbs. Everyone makes fun of the minivan in the suburbs when they are still hitting the bistros and pubs, but one by one those wedding bells break up that old gang of mine, they migrate to the suburbs. The cities in and around Boston are transforming, but again look at your time horizon. Many love this type of living (the access to the city, the culture, etc.). Make sure that your place offers what someone who will pay this kind of money wants.

My concern isn't that condos/townhouses aren't a great way to live for a certain chapter of your life; it is just that I see them as hitting a limit. When you're younger and working longer hours the accessibility to the city pays dividends, but the income to price is usually 3 times, so if you make $100k that would be $300k for a condo. If two are working you can break the $300k barrier. In order for people to afford the $475k you usually need two earners. My gauge for this one would be think about if you had to rent this place out, could you find two young professionals that could split the rent and would the rent cover your mortgage?

What most likely happens is that someone bought that condo for $300k and wants $490k. They clear around $150k or so, they buy a $500k house in the burbs and have a $300k mortgage that the sugar daddy can swing and mommy can stay home. It's like a supply chain. You buy his condo, he buys the starter home in the burbs, and the guy selling his starter home gets the bigger house. You can't blame the seller, the guy before him probably bought it for $150k and sold it to him for $300k. When people scratch their heads and ask "How on earth can they afford that house?" The answer is that they have hit a few market doubles. The guy standing on the ground is waiting for this kite to land because it has gone through two doubles is like 10 years. Have incomes done that? I wouldn't touch a condo for over $350k unless it was huge and overlooked Boston Common or something like that. I bet that not much maintenance was done during the bubble. Bamboo floors and granite countertops don't keep the rain out.

I would urge you to look at the entire supply chain of home above, below, and all around. If you can get a starter home in Hingham, Newton, and Lexington for $475k, it would be a no brainier for me. You might even get a much bigger place with more privacy if you look further.

Keep your eye on sellers that have bought their property many years ago because they can discount lower than someone who recently bought.
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tjmatthew



Joined: 10 Dec 2006
Posts: 3
Location: Springfield

PostPosted: Sun Jan 07, 2007 4:06 am GMT    Post subject: wait it out? Reply with quote

I'll echo the same thing I read about concerning when to buy stocks that have declined. You never know when the price hits bottom until it starts to come back up again. Of course, that's strictly speaking as an investor. I just bought a house for family reasons. I'm willing to trade off for what my family needs.
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kdog



Joined: 03 Jan 2007
Posts: 7

PostPosted: Sun Jan 07, 2007 5:57 pm GMT    Post subject: Reply with quote

Thanks for the useful comments... I think it does makes sense to hold off on a condo purchase in our situation and see what kind of singles are available in our price range later in the year. Best scenario is to buy a place we can really stay in vs. a condo where we already know we'd need to move once kids are old enough for school...
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PostPosted: Mon Jan 08, 2007 4:36 pm GMT    Post subject: story on housing Reply with quote

I'm a reporter for public radio working on a story about the ripple effects of the down housing market... like "kdog" saying it's a great time to buy. Is it really? I'd love to talk with you kdog. And what other effects have you seen in your neighborhood? I'm looking to find real people to interview for this story...how are you affected? I'll check back for postings and then give you an email if anyone is interested in being directly contacted. Thanks.
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kdog



Joined: 03 Jan 2007
Posts: 7

PostPosted: Mon Jan 08, 2007 5:58 pm GMT    Post subject: Reply with quote

Hi reporter... I'd be willing to chat with you about our recent experiences with the greater Boston market... How can we get in touch?
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Eti22
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PostPosted: Mon Jan 08, 2007 6:44 pm GMT    Post subject: Reply with quote

Well, you are right on "it is not a good investment, but a place to live", so what you need to do is to think

1- Would you rent this townhouse for whatever your monthly mortgage+tax+insurance payments will be?

If your answer is "yes" proceed to the next step;

2-If you need to rent this townhouse in the near future due to unexpected changes in your life, would you be able to cover the difference between the rent you are getting and the other monthly expenses?

If your answer is "yes" to the second question, then you can definitely afford this townhouse and should not worry about your investment and live there happily ever after, but if not you can not afford this place and should wait until you find a place that you can afford or somehow make more money.

Hope that helps:-)
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PostPosted: Mon Jan 08, 2007 6:59 pm GMT    Post subject: getting in touch Reply with quote

kdog, Please email me at my work address mbrady@wbur.bu.edu and we can talk more. Thanks!
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vuky



Joined: 12 Nov 2006
Posts: 7

PostPosted: Mon Jan 08, 2007 8:36 pm GMT    Post subject: Re: Potential purchase scenario - comments? Reply with quote

kdog wrote:
My question is whether this is potentially a good deal or not. The sellers already bought a home in the burbs and moved last summer; they are anxious to sell. The potential selling price is at a significant discount from '05 prices (17 percent or so). My feeling is that if we can buy below value we can absorb further declines in the market as long as they are relatively small... what I don't understand is how likely this correction is going to continue for.

My relatively naive prediction is that depreciation will continue through the spring and then stabilize, but then housing values will not appreciate any faster than inflation over the next decade or so. That makes home buying not much of an investment but simply a place to live... What's the best way to take advantage of this market?


My wife and I have looked to buy a home for a number of months. We called it off in October once we realized that prices are in free fall. Who wants to buy in a falling market, right ?

We ended up renting a house North of Boston which was actually on sale and are paying a bit more than half than we would spend if we bought the house at list price. That is how much things are out of whack.

In the end it all depends what your goals are but you should consider the option that prices may continue plunging beyond the spring and that they may plunge 15, 20 or 30% from prices today (check out the link at the bottom of this post). This may put you in a tough spot if you need to move due to job or other life changes.

I personally don't want to be beholden to any piece of property. On Mass Housing Market Blog they have a graph of historical prices as guide to potential future prices

http://masshousemarket.blogspot.com/2006/09/historical-trends-as-guide-to-future.html

Good luck
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Mon Jan 08, 2007 9:16 pm GMT    Post subject: even if you can afford it.. Reply with quote

After you do the calcs to see if you can afford the place and you have the safety net to rent it in case you want/have to, don't just say, "Hey, problem's solved, let's pull the trigger".

Step back and say, even if I can buy/afford this place for say $475k, what if I can buy this place for much less if I'm patient. The reason is because rents might dip as well.

I'd look at someting $100k plus more than what I could afford and lowball like a Gatling gun.
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finmah
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PostPosted: Thu Jan 18, 2007 3:14 pm GMT    Post subject: Just bought after renting Reply with quote

Homeowner in the 90's rented for 4 years and just bought last year. Tired of waiting- we looked everywhere. Everytime I see people posting that they are "waiting" - it's like stocks - the house prices are not going to come to them. They might come down but not in the areas they want. After looking everywhere we are in metroWest and can get into Boston.

Here is where the overvalue is (imho) South Shore - reason is you cannot get into Boston very easily - priced almost as high as MetroWest.

If you are going to pay high be close to the city otherwise you are dealing with a whole different market - be careful in subdivisions further than 15 miles out.

Look for intrinsic value in the structure of the community including the road system - or is it just an outpost town with a mall down the expressway. These outposts have smaller downtowns posing as charming and rural but no sidewalks, sewer, decent traffic patterns - lots of country roads back up with traffic.

Watch the tax rate - you might pay far more for a subpar community because they have high tax rates from the old days when their houses were 150k. Now they are 700k due to open land building and the 14-18 per thousand will crush you as they inevitably raise them. Higher priced community can actually be lower in taxes - 8-10 per thousand. The difference makes up for the higher initial price.

It is difficult to imagine the country allowing housing to fall too far maybe some but remember that our currency has declined markedly we are now cheap to 133 countries that couldn't afford us before. There is some intern market interest.
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admin
Site Admin


Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston

PostPosted: Thu Jan 18, 2007 3:28 pm GMT    Post subject: Reply with quote

Quote:

Everytime I see people posting that they are "waiting" - it's like stocks - the house prices are not going to come to them.


Actually, the NASDAQ composite lost roughly 80% when the tech bubble burst, so prices did come to those who were waiting. That's nominal too - prices fell further when you account for inflation.

- admin
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vuky



Joined: 12 Nov 2006
Posts: 7

PostPosted: Thu Jan 18, 2007 8:10 pm GMT    Post subject: Re: Just bought after renting Reply with quote

finmah wrote:
Everytime I see people posting that they are "waiting" - it's like stocks - the house prices are not going to come to them. They might come down but not in the areas they want. After looking everywhere we are in metroWest and can get into Boston.


Sure no one has a crystal ball however when I can rent a house for roughly half the amount of money it would take to buy the exact same house I say let's wait. Sure I don't have the "pride of ownership" but I also don't have the pitfalls of ownership either ie. repairs, maintenance etc. I used to own a house and it was quite costly beyond the mortgage payment ie. couple leaky windows, old roof, cracked sky lights, poorly installed toilet that could have rotted a whole subfloor and tons of other fun things I get the "pride" of fixing.

So in the end I am willing to bet I will benefit from waiting. Hey it's the biggest investment I will ever make so being impatient may cost me dearly.
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AgentGrn



Joined: 28 Sep 2006
Posts: 82

PostPosted: Tue Jan 23, 2007 7:46 pm GMT    Post subject: Reply with quote

It may sound old fashioned, but the process my wife and I are going through is to find out what it is we really need and separating that from the wants. The second part is finding out what we can reasonably afford and making a means to save up for as much of a downpayment as possible.

To take advantage of the market, I'd definitely wait. $475k is roughly affordable to a couple which makes around $160k. It's also wise to consider if you could get by if one of you lost your job. Let's face it, there are very few fields where there is any employer loyalty left ... and if your skill set is very specific, finding an equivalent job may be difficult and time consuming at best.
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