‘Decline In The Degree Of Overvaluation’ In Boston, AC
The Boston Globe has the latest on the bursting condo bubble. “With a wave of new condominium units now available in Greater Boston, real estate developers are offering incentives to boost sales and move hard-to-market units. Developers are often willing to pay closing costs, forgive monthly maintenance fees for a year, or throw in amenities such as free hardwood floors.”
“These incentives are rarely advertised, but buyers, sensing that the leverage in negotiations is shifting in their favor, are bargaining harder for extras.”
“‘All of a sudden, in the last year, there are so many projects that we haven’t really been facing this kind of surge of units and projects in the city before,’ said Lili Banani, a Back Bay agent. ‘There’s a lot of competition, and that’s why you see more of these incentives.’”
“The market for single-family homes in the suburbs slowed considerably in 2005, but Boston’s condo market remains strong. Yet there are currently about 1,350 downtown condos for sale, up from 880 a year ago. And the pipeline is full of new construction and apartment-to-condo conversions. The Boston Redevelopment Authority recently estimated that 14,000 residential units are under way or approved, and, over the next five years, an estimated 1,000 new units will come on the market annually. That’s on top of existing units that would come on the market due to normal turnover in the real estate market.”
“In June, Jerry Greeff helped his 25-year-old son, Adam, purchase his first property, a $322,000 unit in the complex. That deal included the $2,000 sweetener. The developer also pitched owners in the building on buying a second unit. That was ‘the farthest thing from my mind,’ said Jerry Greeff. But Sullivan sold the Greeffs on a second unit on a higher floor by cutting the price $30,000, to $397,000, and giving them $3,000 for closing costs.”
“Some developers are hesitant to disclose specific incentives, for fear of sounding eager to give money away, a fear that conflicts with their desire to send a clear message that they will accommodate prospective buyers. ‘We’re definitely willing to talk,’ said Kevin Lewis.”
And prices are falling in Atlantic City. “With home prices throughout Atlantic County continuing to pull in high double-digit appreciations, a financial data and services group is labeling the area ‘extremely overvalued.’”
“Daniel Maloney, an agent in Atlantic City, defended prices for Boardwalk and beachfront properties in Atlantic City, but did concede that some mainland communities are overpriced. ‘I will admit that places like Mays Landing, Absecon, Egg Harbor Township, where large tracts of land have created a lot of competition for development, are seeing increases that might be an overvaluation,’ he said. ‘There is room for adjustment out there, I would say.’”
“Agents and brokers in the Ocean City area are now saying the market’s valuations retreated by about 10 percent recently.”
“Richard DeKaser, chief economist with National City Bank, won’t call the overpricing a bubble, but said the 58.6 percent overvaluation puts the area at risk of a price correction. The report noted its recent softening. From June to September, the area’s overvaluation dipped from 54.8 percent to 46.7 percent.”
“‘In fact, we saw this for the first time in the third quarter for many markets. The decline in degree of overvaluation, which is not to say it corrected itself, is falling. It suggests that we may no longer be in a rising tide with all areas going up together. Some of the hotter markets might be hitting their ceilings,’ DeKaser said.”
Thanks to the readers whos sent in these links.
Feb 22 11:25am ET † Price Change Yield Yld Chng
2 yr 99 13/32 +1/32 4.68 -0.02
5 yr 98 20/32 +4/32 4.56 -0.03
10 yr 99 24/32 +10/32 4.53 -0.03
30 yr 100 5/32 +23/32 4.48 -0.05
2 and 30 inverted again…
Meant to say the 30 is below the fed funds rate….
Knowing that the fed is still tightening, this is just so logical, so logical.. not.
You really need the complete article, plus a few clairifications, to understand (or head scratch) what’s going on here.
Allston (where the guy bought two units) is a real backwater populated by students and immigrants. It is relatively close to Harvard however, and plans are underway to move some of the college there.
Questions:
Why does daddy need to buy a 25 yo a $322K condo?
Who goes for a 1% sweetner?
Who says okay, I’ll buy two when the product is housing?
Why don’t people see that if you wait it will be so much better? It’s an f’in condo in Allston, for pete’s sake!!
On the understanding MA front- does everyone see these numbers- 1400! There’s that many condos in one FL high rise, and despite the increase from 05, there were ~1200 on average in 04. This is what makes MA different (NOT saying prices not going down, just different from many other places and the big developments).
What also makes Mass different is it has lost population two years in row and FL has increased its population.
From the article: “Yet there are currently about 1,350 downtown condos for sale, up from 880 a year ago, according to Listing Information Network, which tracks that market.”
That indicates to me that MA is no different from any other bubble market. Prices for an average condo were, say, $300,000 last year when there was only 800 for sale. That’s the extent of demand in Boston at that given supply level. Inventory has now doubled, similar to the explosions of inventory in other bubble areas.
Perhaps in Florida, the addition of 600 additional condos would have a negligable impact. But what makes you think that this current supply (and the projected continued increase) is not outrageously outstripping demand in Boston?
The population of MA is not dropping that much and there is some discussion that the house buying population (which includes out of town parents such as this one) is not properly tabulated. If you read the article, the number of condos for sale is only up 10% from 04, and other data on this blog has 100-200% increase in some cities.
But if you want to think that the entire country is exactly the same, go ahead. You can join the other “Boston prices to drop 50%” boneheads who periodically inhabit this blog.
Same thought I was having…however, I assume you are middle class like me and looking at financial fundamentals and other logic, etc. What we forget is that some of these folks have some SERIOUS cash and don’t really care about a $75K + or - price fluctuation. Maybe this guy isn’t buying for a short term flip but rather the long haul, kid needs a place to live now, I promised I get him a condo if he graduated from Harvard, and writing out a check for $720K is no big deal to him….thinking it may drop to $275K next year, but 15 years from now these should be worth $750K each and I can deduct the losses and depreciation, etc. Hard for me to imagine, but I’ve met some really loaded people like that. I’m being nice, if he is like the other 95% of buyers at this point then he is speculating and will get screwed. The story just didn’t sound like that. Rich guys that buy this stuff are nice to have around when the bubble crashes because they are more willing to take the big loss and sell cheap first.
according to MLS there are 2,266 active condo listings in Boston right now. a broker once told me that i should use the LINX listing service to do appraisals cause thats what they all use in Boston. So it could be much higher on LINX. Lets not forget to factor in some of the adjacent cities such as Cambridge (272); Brookline (184); Somerville (239); Medford (119); Newton (152). So thats well over 3,000 just from MLS. 1,200 is a joke.
i
Imagine….. NJ and Beantown RE markets crumble. That means a whole lot less NJ/CT/NY slimers and massholes invading us here in VT.
Angry lingus strikes again!
You know Lingus, most of the people I know coming from VT are born and bred in VT and are rich a-holes themselves.
But I have been there are I’m guessing there’s a lot of inbreeding.
VT, esp the small towns, are full of drug users.
What about those two kids who thrill killed the Dartmouth professors? They were from VT. Seems like you could use some outside influences.
LOL.
My buddy lived in VT for a couple of years while in college. He told me that most people living there are either on drugs or hiding from the authorities. He was the former, on LSD and following the Grateful Dead around. I don’t know how he graduated.
Oh, yeah…
Vermont is TERRIBLE. Just an ugly, despicable, awful place. The winters, the summers - all the time. And the people just have no manners, education or anything. In fact, most are missing their teeth. And it smells, the air is dirty and nobody has any sense of personal responsibility. Did I mention the weather? And, oh - the skiing sucks, the cycling terrain is just above the worst on earth and that maple syrup, my gosh, is it a mess when it gets in your hair! And the bugs? You should see the size of the frickin’ mosquitoes in August. A friend from work nearly lost a leg one time. And that was before the natives got out the shotgun designed specifically for shooting flatlanders.
It’s a wonder why anybody would live there?! Or MOVE there!
“Richard DeKaser, chief economist with National City Bank, won’t call the overpricing a bubble, but said the 58.6 percent overvaluation puts the area at risk of a price correction. The report noted its recent softening. From June to September, the area’s overvaluation dipped from 54.8 percent to 46.7 percent.”
58.6% overvalued is not a bubble? What percentage does constitute a bubble? I like how he says, “the 58.6 percent overvaluation puts the area at risk of a price correction.” Gee, ya think? Why is everyone so afraid of using the “b-word” when it is so obvious what has happened? Stevie Wonder could even see this bubble (not knocking Stevie, just making a point).
Yes, and 46.7% is still a bubble too.
Jerry Greeff is about to loose his shirt with his two-condo “bargain.”
Builder’s pump/dump continues… just yesterday I was asking for more puts on TOL at $32-33, it’s now at $32.50….
Ummm, I’m also like a pony and a super-soaker and a some gobots.
Today is literally my birthday after all…
Happy birthday, Feep!!
Good news! Instead of paying 120% more than fair value you now need only pay 88% too much.
I was born in Framingham, grew up in West Springfield, school in Boston/Cambridge and Worcester, I dropped of my thesis and never looked back. Massachusetts is obsolete. Use the word carefully, obsolete not useless. What would get me back? Well I was thinking about buying a few hundred acres in Russell or Cummington http://www.realtor.com/Prop/1055479496?lnksrc=00045 after the crash and building a personal airstrip and golf course but to live there? NFW.
Here is an interesting one to mull over:
Federal Reserve Vice Chairman Ferguson Quits Effective April 28
Federal Reserve Vice Chairman Roger Ferguson resigned after more than eight years at the central bank, less than a month after Ben S. Bernanke succeeded Alan Greenspan as chairman.
…
The vice chairman had been publicly at odds with Bernanke on announcing a numerical inflation target. Bernanke described such a goal at his Nov. 15 confirmation hearing as a “possible step toward greater transparency.”
Ferguson said in October 2004 that an inflation goal may limit the Fed’s flexibility to respond to economic shocks, and two months ago said any progress toward such a change “would be very slow.” Edward Gramlich, a former Fed governor, has said their disagreement “never got acrimonious.”
grim
Northern NJ Real Estate Bubble
gee, tx Jerry
condos only lost 30% in NE from 1989 to 1993
breakeven was 1998 w inflation
daddy fcked me”
jerry’s kid in 07
http://www.financialsense.com/fsu/editorials/2006/0222.html
A brilliant essay on our overinflated $ supply, employment, and of course ,this housing bubble.
Good essay, Susan. Thank you!
Boston will have a correction of perhaps 10-20%- But Miami, Phoenix and most of California will double that. Yes we know Mass. has lost population- but there are other social and economic variances that will continue to make Boston a desired place to live. And I am not from that school ‘its different here’…Yeah the climate can suck at times- but honestly, I would rather be in Boston or New York, and to a lesser degree L.A and the SF Bay area then Phoenix, and Miami.
Peter
so how about last ime 1989-1997
what variance was that ?
-30%
so flat- are you from MA or at least NE?
There are many differences today from 89-93. The economic base is different, as is the population demographics. The housing build-out was a fraction of what it was in the 80’s.
You also need to get your numbers straight- some condos fell 50%, some hardly at all. Again with the one size fits all statement.
Many here in MA don’t dispute that prices are going to fall, we’re just trying to keep the discussion rational. This blog was loaded with “MA sucks” and “MA is going down” posts a few months ago. They added nothing.
Flat- I live over in Connecticut- just east of Hartford- which is surprisingly affordable now- even though there has been a rapid increase in prices. I lived through and experienced the 1989-1997 downturn- and was burned-badly. This time around there is a difference. Firstly the New England economy is not a real estate engine based growth animal as it was in the 1980s’- prices are actually up on demand- not speculation- as in many of those other bubble areas. I feel there will be a correction here- but it will be less painful then the last one. Those areas of severe speculation, exotic mortages, and extreme valuations will lead us into a recession- New England will not- but we will still feell a downturn, especially in Boston and Providence. The coming downturn will me milder at least in New England- further down the mid Atlantic coast there will be a sharper correction, as there will be in parts of FLorida, California, AZ and Nevada. This time around- we may dodge the bullet.
Peter,
I am looking in Glastonbury,CT — are you near there. Amazing how much further my cash will go there compared to Fairfield County, where I am currently located.
Yes Guru
and Glastonbury is considered ‘pricey’ in the greater Hartford area- try Coventry or Willington in eastern CT- you can buy a large new Colonial 2500+square feet, over an acre- hardwood floors fireplace and double garage for under 350K- thats cheap for the northeastern megalopolis.
As I said before because New England has not ‘participated’ in the current economic recovery- one based primarily on debt and real estate- we will be hit less hard when the downturn occurs. Yes will have a recession- but not a meltdown like some other regions will bare.
Hi Peter:
I completely agree with you about the situation in New England. I have seen no inventory increase at all in a few towns I want to buy in Rhode Island. There isn’t too much speculation.
I am going to check some properties in Eastern Connecticut this weekend. I’ve never been there before. I hope I can find a decent place and just finish this whole very frustrating housing hunting experience.
Thank you for your suggestions!
IMHO there is little expanding business in the New England states, including finance theese are just last weeks layoff #’s for the MA area.
Sovereign Bancorp yesterday told 60 workers in East Providence that their jobs are being eliminated next month as the company leaves one line of business to concentrate on another. The layoffs in East Providence, which are to take effect March 30, are a result of a decision by Sovereign Bank’s parent company to shut down its correspondent lending operation, which involves buying mortgages from other banks. Sovereign employs 911 people in Rhode Island, including 458 at the East Providence operations center. In total, Pennsylvania-based Sovereign employed 9,928 people as of late January.
The U.S. Repeating Arms plant in New Haven, Conn., is shutting down, ceasing production of the lever-action firearm next month because it is losing money. The plant that had 19,000 employees during World War II now has fewer than 200. The company is a subsidiary of Herstal Group, Herstal, Belgium.Boston, MA
The Women’s Union is eliminating its longtime home healthcare program, a move that will cut 80 workers from its payroll in May. The Boston nonprofit says the 40-year-old program no longer fits its mission of helping low-income women become economically self-sufficient through outside employment. The union acts as a healthcare provider under the program, managing its own payroll of entry-level workers who provide home companion, homemaker and home health services to the elderly and disabled, in what is a very competitive industry. The 129-year-old Women’s Union is a job-training, research and advocacy group. It also runs two shelters for battered women.
Approximate Affected Workforce: 51-100
Source: The Boston Herald - February 15, 2006North Billerica, MA
Avici Systems Inc., a maker of telecommunications equipment, on Thursday announced plans to cut about 45 percent of its work force as the company restructures its business and attempts to contain costs. Avici said it will concentrate its efforts on businesses with the best profit margins. The company, which makes routers used to manage Internet traffic and competes with industry heavyweights Cisco and Juniper Networks, employs about 195 people.
Approximate Affected Workforce: N/A
Source: The Associated Press - February 16, 2006
I think MA is just as screwed as Ohio, California, Minnesota, Wisconsin….etc
hoz
as I said above New England has not been apart of this current ‘recovery’
therefore despite the layoffs you speak of- there will be less severe a downturn that will likely happen in many of the bubble areas. RE prices in most of New England are at fair value- except Boston and Providence -which will likeyt see a 10-20 percent correction. Also Fairfield county CT (an exurb of NYC) which has been pricey for it seems forever- will have some kind of correction- but New England simply has not been part of over speculation, over building, exotic mortages, debt etc. based economy of the last 10 years. Granted business conditions are slow- however when the dust clears we will have a better balance sheet here then in many other areas.
A bubble can reflect the fact that, relative to the MA economy, the housing prices haven’t fallen over the last 5 yrs. The prices may have been kept artificially high. A rising tide lifts all boats - even waterlogged ones.
Been around the Boston area since 85.
Some condos went down and were “abandoned” to foreclosure in early 90’s by speculators.
A house I sold in ‘90 went foreclosure for 65% what I got for it. Too bad I did not have sense to buy it.
‘98 was hardly breakeven for condos I think ‘00 was, that is where I sold in 2000.
Boston area IMHO has not begun to recover from dotcom and telecom bust. I do not know who is pushing the prices, I think they are low volume and the only harmed will be few who came in and bought on IO’s and the dotcomers using housing ATM for lifestyle.
In a downturn the best strategy is to hold, but some have to move!
Didn’t MAR claim 2005 was the best year ever ? But I have to agree I don’t think the volume really compares to the other bubble areas.
islm-
I had a similar experience in the last downturn- my condo sold later for 50% of what I got for it in ‘88.
The trick to this area I think is to undestand it town by town. When East Boston, Chelsea, et al are “hot”, the market is overheated. These places will fall first and fastest. There’s also some evidence that the marginal cities and towns have the most subprime loans.
Still, the prices in the more desirable towns need to get real- why idiots pay $500K for total crap in Newton, Andover, etc. is beyond me. In CA it appears (from reading this blog) that people will pay $500-700K for total crap in the entire state.
I think some of the luxury building (condos or SFH) in MA will take the first plunge as it is the most pricey and I’m assuming the builders want to unload and move on. There IS a lot of condo building and conversion in Boston. I’m just thinking that if it goes down 20% buyers will be coming out of the woodwork.
This is different from 1990 or so when there were no buyers anywhere.
People often think that buyers will “come out of the woodwork” if there is a 10-20% drop in home prices? Who, besides the people on these housing boards, are the potenial buyers as the rate of homeownership is at or very near record percentages? Personally, I think the ready AND willing buyer pool is much narrower than people realize.
I can only offer anecdote, but I know I speak for at least myself and a couple of friends (all with young families, either 1 kid or a kid on the way) when I say there are willing and able buyers on the sidelines in the Boston area. The question is whether we’ll jump in and buy when:
1) we’ve already made the emotional concession of raising families in rented space, at which point it’s pretty much a dry financial decision; how much of a premium over renting (in what’s a glutted rental market, as far as I can tell) do I really want to pay just for the privilege of buying?
2) the times may be looking a little shaky economically and it’s not so certain that we won’t have some unexpected bumps in the road over the next few years.
Of course in this area it’s a little harder to formulate rent/buy comparisons given the difficulty in comparing living spaces — not a lot of tract homes etc. around here. But for the time being it’s certainly cheaper to rent than to buy, and even with a 10-15% drop I’m pretty sure I’d keep renting. 20% and I’d have to start looking at the numbers very closely, it depends on what they would reveal.
just to repeat, that’s anecdote. Small sample size. May not reflect anything about buying potential in the wider market …
guru- I am in the same boat as givemeahome, and can repeat this anecdote. I follow Andover prices daily and all decent houses and all houses reasonably priced get snapped up.
The signs in Andover are same as noted on this blog fro elsewhere- houses sit longer, prices are down slightly, etc.
No sign yet of any crash.
I don’t think think the ownership rate matters. Household creation is unreported. Divorce, students, children growing up, second homes are all not easily counted.
There are a ton of people on the sidelines.
I still see no evidence of ‘the bubble’ bursting in my Boston suburb 30 miles out. A quick search of properties under agreement over the past thirty days reveals these: 547k, 699k, 759k, 769k, 799k, 949k, & 1.1M. This is a small town, albeit a very nice one, with not too much inventory. That’s a lot of sales for this time of the year. It appears as though people are still buying.
I’m not asserting that a bubble’s bursting or that it isn’t, I’m just looking for more info, but a few more anecdotal observations:
1) we can’t know from the “Under Agreement” notice what discount from the list price may be in question, right? I have two colleagues who sold their old houses about 2-3 mos back in something of a panic (having bought the new ones around August without unloading the old ones first) … they reported cutting the list price by 10% and almost 20%, respectively.
2) In the towns immediately around Boston (Cambridge, Arlington, Belmont, Milton, a few others) that I’m tracking closely I see a few SFH going off market, yes, but I also see a lot of list prices coming down by small chunks — 2% to 4%. Nothing earthshattering, and maybe these are just dogs, but certainly it doesn’t seem like there’s much buyer interest out there. And the open houses I’ve been to in the last several weeks are dead.
I don’t see a bubble bursting here as such, either, but again, rent/price ratios are way out of shape, there’s no real need to buy, and I’m interested to see what happens if there’s a ripple effect with what’s going on in more exuberant parts of the country.
I have the same interest. you can’t get info from “under agreement”, though the realtors have it. you have to wait until it’s sold. i agree completely with your observations. we just have to wait- I think the trend (national or otherwise) are moving towards prices going down. the questions are of course, how far and how fast. I just have to keep my wife at bay.
Where does one obtain the inventory and sales histories of the New England areas? We have seen Phoenix and San Diego number flogged to death in Ben’s blog, but the comparable data for CT and RI are not quoted.
go to http://www.newenglandmoves.com
its a coldwell banker site, but it links to MLS. It will give you any of the states
I am in the same boat, living in Andover trying to buy a house there. Lots of old property sitting on the market, stagnant.
The good, priced well properties do sell.
And sellers do not seem to lower their prices much, they prefer to keep their properties sitting idle for months. Andover has some nice houses, but lots of old, ugly and in need of work homes as well.
Agreed. There are varying degrees of discounting depending on how aggressively the properties were priced. Ok, in my town of Harvard, MA, here are the recent sold properties from the MLS:
List Sold Price
395k 357k
449k 423k
499k 480k
549k 554k
559k 520k
590k 559k
685k 690k
749k 680k
859k 820k
970k 948k
1.19M 945k
1.25M 1.14k
As you can see, the discounting varies considerably, but the absolute sales prices are very high, imho.
That averages to a 5.8% discount off of asking price, fwiw.
Are those sale prices December time frame? I’d go find the answer myself but I’m in office, can’t go too nuts with the online research until I get home.
A few other things: as I drive around to open houses I see a lot of empty homes out there. I’m talking existing SFH homes, not condos, not tract houses. Lots of photos of empty houses on MLS too. That’s got to mean at least some double-mortgage pain spread around.
I also notice that a few subtly nicer houses have moved; I don’t think that’s coincidence and it doesn’t look like any kind of flipping. Seems likely that it’s just people finding nicer places at a slight discount and snapping them up as homes. I guess I’ll have a better idea when I can verify actual sale data.
PS I feel your pain, renting in ma … got the mother-in-law suggesting a long stream of houses way out of our price range … looking forward to see what spring brings, one way or the other.
There are 5281 homes for sale in New Haven County! Is that some sort of record? 6436 in Fairfield County, and only 3819 in Hartford County. This seems a lot more than before.
Yup, there are a bunch of overpriced pos empty houses out there as well. I wouldn’t touch them - at least at those prices. The houses I listed are the most recently sold listings.