Osmif

Well, it would appear we agree on the major stuff, then.

1. Rich people are not feeling the crunch like the rest of us (big surprise).
2. However you count the start of the bubble, it's bursting;
3. The last buyers (and regions) into the bubble will be the first ones out.
4. The areas that became most unaffordable remain unaffordable as of May 2008.

My point, given all that, is that we're in the early innings of the bust, not the end of it. Those unaffordable areas will be more affordable soon, and there will be outright bargains in places like Dorchester even sooner.

Not trying to put words in your mouth. Just responding to the "median down, but average up" point you seemed to be implying, which sounds an bit like the "great time to buy or sell a house!" marketing rhetoric from the NAR.

Banks (and speculators) got really sloppy and greedy in the loose money mudbath; now they're getting shellacked. Irresponsible legislation notwithstanding, that shellacking may help us all avoid a repeat of this debacle.

In other words, it's good that standards are getting tightened up; a lack of standards is what brought us the negative-amortization, payment option, hybrid ARMs and the like, that are blowing up in everyone's faces these days.

Cheers - Mon May 19 2008, 11:11

Here's how your argument looks to those of us shopping for a house, Jon, or at least to me (and I appreciate your calling me brave, too :-).

During the bubble, when the Boston area median price was going up every quarter (far, far faster than incomes, I might add), it was a measure of the market that house salespeople deemed satisfactory. Now that it's going down, those with an interest in house sales are questioning its validity. Seems like a classic case of "lies, damn lies and statistics".

To answer the question posed above, I'm suggesting we use data from long-standing, objective (non-industry generated) sources. Data that show what happened from 1995-2005: a *massive*, unsustainable bubble in house prices, not nearly matched by incomes or rents.

The Boston Case-Shiller index, which has been dropping for 2-3 years, and which recently went negative, does not suggest a price recovery soon. It looks a lot like we have another solid year, maybe two, maybe more ahead of us of declining house prices in Boston.

As for suddenly switching from using median price to using mean price, while I think it's basically an attempt to distract otherwise cautious buyers from what's actually going on in the market, I will offer one explanation: houses at the high end are less susceptible to the credit crunch.

The super rich are not the ones hurting in this town, state, country, world. So flat or rising sales volumes in the multimillion dollar segment, when averaged in with sales of fewer than ususal houses at the low end, for lower prices, results in a higher average price.

While prices are softer in some areas than in others, dropping prices in one area ultimately affect prices in neighboring areas, and universally tighter credit from banks, which is what we have, will affect the number and the qualification of buyers in any town.

Glad for the open debate. - Mon May 19 2008, 09:45

Boston1a, you're a brave soul, and you're a member of an endangered species: call it the housing ostrich, head in the sand. I assume you haven't heard the news, or don't want to, and not that you're actually trying to misinform the good people of Trulia.

Who's calling Roxbury the South End (I assume you mean "the next South End")? What do you mean "The North End is up"? Median price? Average? Year over year? Sales volume? According to whom? Just throwing stuff at the wall, and hoping it sticks?

Every week, the Globe runs a new article about condo developments not only not "being filled up", but being auctioned off wholesale. Recently, several downtown, one in the South End and one in Brookline, all areas you cite as "hot".

Prices in Boston have dropped 5% in the last year, according to the very best data available (the S&P Case/Shiller house price index), and will drop another 10% this year at least, based on exchange traded futures in the same index, in which people's money's where their mouth is.

Is your money where your mouth is? Are you buying up a bunch of condos in the seaport, to flip them in a year? I'm guessing you know how foolish that would be, and that you wouldn't buy today. Neither should anyone who won't be staying put for 10 years, at least. - Mon May 19 2008, 05:36

Median price will drop 10% year over year both in 2008 and in 2009. Beyond is anyone's guess.

Demographics (retiring/Florida-bound baby boomers), loan aging on both subprime and Alt-A, and a recession, whether run-of-the-mill or long and deep, will keep downward pressure on prices, whatever else may happen to prop them up temporarily.

Election-year grandstanding and last-ditch spin by industry cheerleaders ("Brookline/Back Bay/Wellesley is different!") will continue to muddy the waters through 2008, but don't be fooled. That's if oil stays under $150. If it breaks out to the upside, it'll be free mcmansions and SUVs for everyone, not that we want em.

The dollar's the wild card. If inflation takes off (more than it has), we'll all wish we'd financed $500K for 6% at the peak in 2005. But then all bets are off anyhow.

This view is not out of keeping with those of Nobel economist Joseph Stiglitz. (See also Paul Volcker, Robert Shiller, Dean Baker, Paul Krugman, Nouriel Roubini, etc, etc). - Mon May 12 2008, 14:56

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. - Tue Oct 30 2007, 07:23

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&pct…

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. - Fri Oct 26 2007, 14:57

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. - Wed Oct 24 2007, 09:38