Rent vs Buy in Back Bay>Question Details

Pablo Elosua, Home Buyer in Boston, MA

Do you think Boston prices will decline?

Asked by Pablo Elosua, Boston, MA Thu Oct 11, 2007

I´m not sure whether to rent or to buy...

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You really need to look at your specific area and price range. Home in the million plus have actually had an increase in price! Some area's have been hit the hardest, some not so bad. Believe it or not, overall sales #'s have actually stayed about the same as last year (quantity wise), prices are a little off, some area's only -2% some a bit more, it really depends on location-location-location. Renting on the otherhand doesn't get you any benefits and even if you don't see much gain in your homes equity right away, it certainly would be better than the -0- equity your gaining in renting, never mind the possible tax benefits you would receive year end (interest on loan). Are prices going to decline? If the sellers don't get what they are looking for, then they'll pull their houses from the market, meaning - less inventory for more buyers, it could actually drive up the market....think of supply and demand. My opinion, this is a great time to buy!
1 vote Thank Flag Link Thu Oct 11, 2007
More hard data, for those that like that kind of thing. Note that Boston house prices have dropped 3.6% in the last year, which, in inflation adjusted terms, is more like 6%. On a $500K house, waiting a year just saved you $30K real dollars. Does anyone pay that much in rent?

Money quote from the report:


At both the national and metro area levels, the fall in home prices is showing no real signs of a
slowdown or turnaround,” says Robert J. Shiller, Chief Economist at MacroMarkets LLC. “Year-over-
year and monthly price returns are continuing to either move deeper into negative territory or are
experiencing persistent diminishing returns. There is really no positive news in today’s report, as most of
the metro areas are showing declining or vanishing returns on both an annual and monthly basis. Only
two metro areas – Denver and Detroit – showed improvement in their annual returns and even those were
reports of slightly less negative numbers.
2 votes Thank Flag Link Tue Oct 30, 2007
I'm leading Paul astray? I'm try to do Paul a favor. Paul, don't catch a falling knife.

I'm paying too much attention to economists? That demands a response.

I appear to be the only one on this thread offering a counterpoint. The question was "Do you think Boston prices will decline?" A few factual answers that no one else is offering:

1. It has happened in Boston. They declined in the late 80's/early 90's. Lots of people lost their homes.
2. Even If prices stay flat for 5 years, they will have effectively declined 25% in real terms.
3. If you put 20% down, and #2 happens, your equity is gone.
4. Put a $100K down payment in a CD ladder at 5%, and rent for half the price of a payment, and in 5 years you have $129,483.64 , instead of $0
5. Time is on your side. Why rush? Watch for 6 months, and see what happens. Not even the MAR is expecting prices to start going up again until the end of 2008.

Throughout the "anomalous" period of the last 5-10 years, which any objective observer, economist or not, will tell you is putting it very mildly, agents, brokers, bankers, trade associations, the media (whose money comes largely from industry ads), did nothing but sell, sell, sell, "life change" be damned. Lenders knew many people would never be able to pay back the loans they were making. But the fees were sweet, and the Fed was asleep at the wheel.

The fundamental problem in Boston is affordability: the median income cannot sustain the median house price. It's Econ 101 that those ratios correct eventually. Now's the time for Boston, and a lot of other places where the easy money created affordability problems for the middle class.

There's a lot more to say about your generalizations: "The real estate market in Boston is amazingly healthy." Is an indefensible statement, for example, but I will let hard numbers speak for themselves.
See:
http://www.bostonbubble.com/forums/viewtopic.php?t=512

and

http://www.housing-watch.com/regionview.aspx?city=Boston&…

Towns included in the second graph:
Allston, Beachmont, Boston, Boston College, Boston University, Brighton, Brookline, Cambridge, Cambridgeport, Chestnut Hill, Dedham, Dorchester, Dorchester Center, East Cambridge, East Milton, East Somerville, East Watertown, Everett, Grove Hall, Hyde Park, Inman Square, Jamaica Plain, Kendall Square, Kenmore, Mattapan, Milton, Mission Hill, Needham, Newton, Newton Center, Newtonville, Readville, Revere, Revere Beach, Riverside, Roslindale, Roxbury, Roxbury Crossing, Somerville, South Boston, Uphams Corner, Watertown, West Roxbury, Winter Hill, Winthrop

Thanks for the debate. Paul, do your homework.
2 votes Thank Flag Link Fri Oct 26, 2007
A few facts from a well-informed lifetime Boston local, not a "Real Estate Pro", whose salary does not depend on selling houses, mortgages, furniture, paint, etc.

I want to buy in Boston, I have a family and a down payment, good credit, etc. But I will not buy for at least another year. Here's why.

1. All reputable economists (and some disreputable ones like David Lereah, now-former head of the NAR) expect house prices to go down nationwide this year for the first time since the Great Depression.

2. Prices in Metro Boston have gone down ~5% in the last year. With mortgage lending tightening up significantly and foreclosures up 100% over the last year, it is a very good bet that they will go down further for at least 2008.

3. Subprime Mortgages. between *$30 Billion* and *$100 Billion* worth of outstanding subprime ARMs will reset to higher rates *per month* for the next 12 months. That means more inventory, and fewer sales. Lower prices to follow.

4. Yes, real estate prices vary by location. However, if it costs a third to own in an adjacent city or state what it costs to live in Boston, which it does already in some cases, and will undoubtedly soon in others, that will affect prices here.

5. All of this is occuring in a period of economic growth. If there's a recession, and you can ask laid-off mortgage brokers, real estate salespeople, bankers, home depot workers, etc, if they see one coming, all bets are off.

6. The good news. Boston was among the first cities to see a price decline. We may get the pain overwith quicker and sooner than cities where everyone's still in denial.

Check the link for a much more nuanced and well-attended debate than the one available here.

Best of luck.
2 votes Thank Flag Link Wed Oct 24, 2007
Very difficult to answer as there will undoubtedly be ebbs and flows in the market. Keep in mind, many markets within markets have actually seen very little impact in values and some markets have seen increases.
1 vote Thank Flag Link Wed Mar 10, 2010
The Boston market is stabilizing. Check out The Real Estate Insider posted on http://www.BostonLuxuryRealEstate.com for the up to date facts on what properties are selling for in the Boston Real Estate Market. If you want information on all the neighborhoods in Boston go to the Market Reports page on the website.
1 vote Thank Flag Link Mon Mar 8, 2010
It is now 1/10. You can see what has happened since 10/07. Who was correct? Not the realtors. What about from here? No one knows, of course, but IMO they have minimal chance of going up and a good chance of dropping. It has taken government handouts to keep the market afloat, and trillion deficit spending to keep the economy where it is.
1 vote Thank Flag Link Fri Jan 15, 2010
No they will not across the board...some areas yes and some areas no.....you should consider your time frame and where you are likely to live...also keep in mind that if you are renting and you after 5 years you have spent 50K in renting, the risk of buying inclusive of a decline washes the fear away and that is not including your tax benefit of apprx. 20K!
Web Reference: http://www.JayMcHugh.com
1 vote Thank Flag Link Thu Oct 11, 2007
YES Yes Yes. Overpriced and although not this year wait till after election. Done over. Not a crash but very ugly....where does 27 year olds think there doing bpaying 400K for a condo in a 3 fam that 10 years ago the 3 fam was worth less then they are paying for a renovation job. LOL , and these buyers are making 300K plus assuming there buying 400K I do not think so. it will all even out on the bad side
0 votes Thank Flag Link Mon May 30, 2011
I personally don't think so. Especially in the fun neighborhoods like Back Bay, Beacon Hill, South End and Fenway. With our schools and hospitals being so recession proof, the downturn in the economy would have to go on much longer for prices to decline in Boston. If we were to go into a depression, everything everywhere will get cheaper of course.
If this recession behaves like the others however prices in Boston that haven't given an inch so far will continue even higher in the spring of 2011
Hope this helps, Jeff Persons ABR http://wesellboston.net/
0 votes Thank Flag Link Mon Aug 16, 2010
Thanks for all your help guys. I posted this and actually forgot about it until just now. I ended up renting and a life change had me move away from the city for now (I hope to be back in the future). I'm glad I rented but thanks for all the answers.
0 votes Thank Flag Link Mon Mar 8, 2010
Although this question is old odds are someone will look at it who is from Boston.

Below is a house price prediction site.
http://www.housingpredictor.com/massachusetts.html

As home prices decline the whole market will suffer in Boston, which is home to nearly two-thirds of the state's population and has growing unemployment in the financial industry and technology. Rising job losses have contributed to the high number of foreclosures in Boston, which is expected to see improving home sales in the upper end of the market with the expansion of the federal tax credit to move-up buyers.

The inventory of homes has been slashed as a result of lower prices and mortgage rates that are staying near record lows. But Boston housing will have to work through the excess inventory of foreclosures before the market finds its footing, and is forecast to see average housing prices decline another 7.2% in 2010.

It was bad news in 2007. It was bad news in 2008, it was bad news in 2009 and 2010 does not look much better.
0 votes Thank Flag Link Mon Mar 8, 2010
Maybe, but if they do, it won't be by much. And they're probably not going to rise anytime soon either. The median price of homes in the Boston area have stayed within a small range over the past 5 years - generally between $340,000 and $360,000. There was a recent spike to $380,000 then a subsequent decline to $315,000, but median prices are now back around $360,000, the upper end of the range.
0 votes Thank Flag Link Thu Nov 5, 2009
Osmif,

I think you might be leading Paul astray here. You have to look at the factors which drive all real estate markets, no matter what the economy is doing globally. Life change is the #1 reason why people buy or sell a home. In Boston you have the largest influx of new residents annually in the nation. College students and medical professionals come in droves every single year and that is never going to change. All of those people absolutely have to live close to the city. They do not have the luxury of taking the commuter rail or the T for a 2 hour round trip each day. These students will eventually graduate and take their first jobs and start moving up the corporate ladder. The demand will always be highest in Boston and you will continually see a strong real estate market. To make a blanket statement like "I will hold off because a global economist made a sweepingly generalized statement about something that is inherently specific and uncommon" is completely ridiculous. Life changes in Boston more than anywhere else. This will drive the market. Yes, have things stopped growing out of control like they were in '04 and '05? Of course they have. Those years had us in a completely unsustainable growth spurt. Someone as analytical as you try to sound should recognize that those years were complete statistical anomalies. The truth is in all of the desirable neighborhoods in Boston the market is well ahead of the national curve. Back Bay and Beacon Hill are seeing the third strongest year IN HISTORY. Brookline, Newton, Cambridge are seeing similar numbers. Yes, East Boston, Roslindale, Dorchester and Roxbury are not doing well, but those were highly speculative markets to begin with. The real estate market in Boston is amazingly healthy. Please just don't compare it to something that was unsustainable.
0 votes Thank Flag Link Thu Oct 25, 2007
Here's a link to a new report real estate trends report prepared by PMI, a risk management group. Rather than rehash the report here, have a look. It's very informative and fairly positive for the Boston area, without the positive spin we REALTORs and our Associations offer! Reiterating what the others have said, all real estate is local, and will vary by neighborhood.
0 votes Thank Flag Link Thu Oct 11, 2007
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