For the last several years, real estate has been in a pricing bubble. Prices have been substantially higher than historical relationships to incomes and rents would justify. While prices have started to decline, they are still abnormally high compared to these core fundamentals. This website is focused on analyzing the housing bubble, its aftermath, and real estate in general as it pertains to the Greater Boston Area.
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- Boston Futures: For Greater Boston real estate prices from 1987 through the present and looking several years into the future, see the latest S&P/Case-Shiller Boston snapshot with futures (both before and after inflation). The futures markets are probably the most unbiased predictor of where housing prices are headed.
- Price/Income: For a gauge of how overpriced the market is, see the latest report on the Greater Boston price to income ratio.
- Inflation Adjusted: See the latest report on Massachusetts single family home prices for prices as typically reported by the local media but adjusted for inflation.
- Price/Rent: Comparing prices to rents can help illuminate an overpriced market since many hypothetical justifications for higher home prices should raise rents as well. See the latest report on the Boston MSA price to rent ratio.
- The population of the Greater Boston Area was declining as the housing market posted its most exceptional gains during the bubble. One of the fallacious arguments which was used to contest the existence of a housing bubble was that a growing population was pushing up the natural price of property. While that argument is flawed in general, it is especially wrong when the population is declining.
- The Wall Street Journal has identified Boston as one of the metropolitan areas in the US where it is cheaper to rent than to buy. Their data goes from 2001, when it was already cheaper to rent, to 2004 when the difference was even more pronounced. The Economist also published an article showing that renting is cheaper, and although it does not focus on Boston, it is very thorough about including various expenses and tax benefits that the Wall Street Journal left out.
[Wall Street Journal]
- Consumer Reports has rated real estate in the Boston market as "Overpriced" and pegged it at 24% over the affordable price as of Q4 2004.
- The number of homes sold in Massachusetts has been plummeting. For the third quarter of 2006 (the most recently reported quarter as of this writing), home sales have fallen 23% compared with the same quarter one year earlier. This despite the fact that home sales were already on the decline in 2005.
[Milford Daily News]
- Foreclosures are rising sharply in Greater Boston and Massachusetts. There were more foreclosures in the first nine months of 2006 than in all of 2005, and as of this writing (in November 2006), Massachusetts is on track to break the all time record in 2006.
- Boston and Massachusetts are the typical exceptions that people use to qualify their statements when they say that real estate prices don't fall. Boston and Massachusetts prices have fallen in the past, even in nominal terms (when adjusted for inflation, the fall is even more pronounced). Bear in mind that even if prices decline merely by the same percent that they have in the past, the leverage (a.k.a., margin or mortgage) used to purchase the homes must be taken into consideration - the substantially higher number of zero down and negative amortization loans will leave a lot of people with heavy losses and negative equity. [BusinessWeek] [Wall Street Journal (sub)]
- To compensate for property that fails to sell, real estate agents in Boston are falling back on the deceptive practice of canceling the listing in MLS and then creating a new listing so that the property appears as new to the market. There were 10,606 MLS cancellations in the first six months of 2005, up from 9,722 cancellations in the first six months of 2004 and 3,736 in 2001. "The number of canceled listings in Massachusetts has nearly tripled since 2001... In a recent spot check of houses for sale on MLS in Middlesex County, Barry Nystedt, president of the Massachusetts Association of Buyer Agents, said one in four listings canceled between May 25 and June 25 was recreated by the same firm with a new MLS number."
National (US) Info
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- Visit the Wikipedia article on the United States housing bubble for another excellent overview of the bubble on a national scale.
- It is actually now cheaper to rent than to buy in many areas even after you factor in accumulated equity and tax savings.
- Yale professor Robert J. Shiller released the first edition of his prophetic book warning of a stock market bubble weeks before the stock market began its epic crash in 2000. He recently released an updated second edition in late February, 2005 with similar warnings of froth in the real estate market. This book is very highly recommended and is quite readable despite the complexity of the subject.
- The current nationwide housing boom has been fueled in large part by historically low interest rates and an increase in the use of risky mortgages. Buyers may find that their monthly payments will skyrocket once the introductory period of their mortgage ends and the adjustable rate kicks in. In 2005, only $83 billion, or 1 percent, of mortgage debt will switch to an adjustable rate. In 2007, this number will leap to $1 trillion, or about 12 percent.
Boston Bubble News & Interesting Links
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