bostonbubble.com

[john p]

We're dealing with people so even if numbers line up, qualitative factors come into play.

In prior generations renting past age 28 was looked down upon as was living with your parents after college. There are people with such strong family ties that they have to be at someone’s house every Sunday for dinner and you might as well move to China if you move to the next town. People look at renters now as being a bit shrewd, or the delayed gratification types to some degree. I think that you need to get that 30 year meter running at some point, or save enough where you can get into a shorter term note if and when you do decide to pull the trigger. I don't think it is wise to rent your entire life, however. I have met people that have because they found a nice comfortable area to rent and it was a winning combination. This, I think, is a long term trap albeit comfortable.

The more common qualitative issues are the alignment of quality of life with the chapter of the life you're in or are ready to be in. To people where work is the focus and they'd rather not spend an hour each way to commute, a condo is the way to go. If people need to hear crickets to unwind and find balance, and they don't like counting the number of hookers that walk down their street at night, then moving to the suburbs is a better fit. To cut to the chase here, you need to think about how many neighborhoods are there in Boston that provide that comfortable living renting where people can ride out into single life and early and mid married chapters of their lives. I know Arlington is really a nice place as well as parts of Cambridge and Charlestown, Brookline, West Roxbury, South End, Southie, some parts of J.P., Waltham, Newton, some parts of Brighton...... I used to rent in Melrose which was really nice (slower pace however). So what you have to do is find those local comfortable areas and see where the landscape is tilting. You almost can't average in rentals or home sales in areas that don't apply to the lifestyle that is acceptable to you, you know. The numbers that surround a reasonable reality to you are the ones that matter. Finding out what realities are available to you is the exploration as well as reasonably predicting the future course of where some are headed.

[john p]

To the guest that totally disagrees with me:

I think many communities in and around Boston am very much overpriced and will have a stronger correction to contend with, so your advice about sit back and relaxing is appropriate. I've found areas that are a better value so I don't even consider the overpriced areas. Hell, I pointed out a very small cape for what was it, $879k. I wouldn't pay $350k for a house that small and I don't care what the view was looking on. I don't waste my time considering people that are out of their minds. Before you sit back and relax, do a little more hunting and you might find a better value somewhere else. Check out places like Hanover, MA; what a nice little community to raise a family. I had people come down to a family bender at my house and they commented that "This is the land that time forgot". That's what I love about it. On Friday nights we see over a hundred old fashioned cars riding around, hot rods, classics etc. We see family guys riding around the country roads with horse farms and cranberry bogs on their Harleys. Its nice living. I can't find a decent pizza place or somewhere that makes a nice gnocchi, and we don't have pajama brunches, but I can get that in the City. I have found a lady with a couple of smokers who makes insane BBQ. Somebody tell Steven Tyler to get down to Kingston to try her’s out.

Anyway, some towns are way, way past their prime and my advice doesn't apply. If you can find the right hunting ground, it is hunting season, however.

[john p]

I see this bubble like the old classic MBA case study of Scott's Fertilizer:

The thing went down like this:

Scotts started a program with their salesmen that they got a sales commission at the point of sale from Business to Business and not Business to Customer. Meaning, if a salesman sold to say Sears, the salesman got a commission. The problem was that Scotts didn't get paid from Sears until Sears sold it to a customer. Salesmen being salesmen did what you guess which is would try to convince Sears to bulk up on inventory so that the salesman could get commissions. Foolishly, Scotts based their next year’s forecasts on this big jump in sales and made more products for the next season. Trouble was, because inventory was too high already, fewer orders came in and because their plants were making more, it was an inventory bubble. Was this the end for Scotts? Answer, no. It took a few flat years for the bubble to even out.

I see Boston's real estate market going down sort of like this. Boston knows how to lay the golden eggs because of smart people like you. We are sitting back a bit sick like the dog that got into the feed bag and we'll be in this food coma for a little while.

[jj]

After reading the May MAR data, I decided to make a CPI adjusted graph of the Warren Group data, using the following websites:
http://rers.thewarrengroup.com/townstats/search.asp
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

I thought the results were interesting. I can't post the graph but here is the data for the town of Arlington. The CPI is the average CPI of the year to date (the average CPI over January to May). I think these numbers are correct (but there could be an error).

[jbw]

Treasury notes are still linked to mortgage rates, but other securities financing mortagages have weakened the link. We are in a brave new world.

No matter what interest rates or the economy do, the majority of the price correction is likely to be inflationary instead of nominal declines because housing is not liquid. Most people cannot afford to sell unless they get a percentage on top of the price they paid for it to off set the fees associated with transacting real estate.

Instead they say, "I'll stay in the house another year." It is only if they get squeezed or have to move (possibly for a job) that people will sell for a loss.

The sick thing is that this loss seems to also apply to the perception that they had paper wealth. They say, "My house was worth $380K, last year (even though I owned it for 30 years) so selling it for less is a percieved loss." Ridiculous.

[RMG]

Even I must now admit that the housing situation in Massachusetts is in a freefall. For some stupid, stupid , stupid person to buy now would be impossible.

Housing will continue an accelerated downward trend for awhile. Buy next month. Buy next year, buy in 2 years. Buy anytime but now and you'll save tens of thousands of dollars. It's over people and I have now officially gone from angry at the whole real estate industry to almost feeling sorrow for the crooks.

Hey potential buyers: if you band together now, you can drive down prices through the floor.

You have assumed control. You have assumed control. You have assumed control.

It is in your hands now my friends. Don't blow it and don't you buy anytime soon.

[JCK]

[RMG]

You seem to forget the obvious difference this time around:

People making good money can't afford to live in these overpriced weather-beaten houses of the Northeast. You can come up with all the business models you want but the fact of the matter is that you'd be a fool to buy a house under these conditions.

These aren't the economical savvy that aren't buying now. It's the huge percentage of normal people. It's simple third grade math.

Just because all the idiots bought at these levels a few years ago, doesn't mean the "real" situation wasn't going to finally show through.

Power to the people.

[JCK]

RMG,

I don't disagree that homes are overpriced, but, as john p has pointed out, the only people priced out are first time buyers. Anyone who bought more than 4 years ago is going to have no problem affording the prices.

The questions then becomes not, whether the prices are reasonable in objective terms (e.g., income/price ratios, etc.), but do the first time buyers have the market sway to pull down prices significantly, and, if so, how much?

Further, how long will the correction take? If prices were remain flat for the next 5 years before going up, and interest rates rise during that time, who will be better off in the long run: the person who waited, or the person who went out and found themselves a good deal now? I don't know the answer to this question, but I don't think it's as clear cut as you'd like to believe, either.

Again, I'm not claiming we're at bottom, but I also think it's foolish to think that MA house prices will be "cheap" by the time this correction works through the system. Houses in Boston have been pretty pricey for at least a generation, relative to the rest of the country.

[admin]

[JCK]

I'm surprised. Weren't we down around 16% just a couple months ago?

Given that prices are moving down, I though for sure we would be even lower by now.

Maybe it's that screwy MAR data...

[RMG]

JCK,

You so readily believe that people have this money. They do not. Who wants to use all their money to pay for a deteriorating house which needs lots of upkeep?

When home prices were in line with incomes then it's ok. You might forgo living a completely full life in order to pay your mortgage but hey, enough is enough.

I don't know about the rest of you, but I want to live. I was just about to buy in 2006 but I'm not going anywhere near this anytime soon. I've got the money, make a good living but value a full life of balance.

Many bought the scam. Bought the sham. It's just a house, but my life is my life.

Trust me, prices are coming way down and then I'll buy. At the least, I'll buy for far less than if I bought 2004-2006. I may or may not get the best deal but hey, I can sleep at night knowing my money's growing, my life is full and I can laugh at all those who put on a good party once or twice a year to show their house and lay panic-stricken the other 360plus days a year.

It ain't worth it and this is doubly true in the weather-beaten Northeast.

[admin]

[RMG]

...and don't shed a tear for me because I don't own. I live in a big, beautiful 4 bedroom house very near the ocean (mile or less). I pay about 1/3 in rent as I would for a mortgage. I pay for no property tax or home owners insurance. I don't pay for upkeep or maintanence.

Hell, I'm not great with my money but I can't help but save.

Don't get me wrong, I'd like to own but why would I right now?

I'll get there but I'm going to chime in about buyers holding on for better.

Again, I could be wrong but all I know is I don't have to care right now.

[RMG]

...and therein lies the rub. If you haven't or didn't buy an overpriced dog between 2003-2006, you have nothing but time. Sellers think they are playing a negotiating game with buyers. Geez, that was soooo 2005.

We have nothing but time. I have no urgency. I'm not the one who is holding that mortgage that I can't afford. I'm on vacation. I'm saving for my daughters college. I'm investing.

Why should I do business with "those people?" You know, those people who want my daughters education. Those people who want me to be stuck with their problem.

No sir, not me thank you.

Call me when you've come way down. I mean way down.

....then we'll talk[/i]