The New York Times ran a story a while back regarding the state of the housing market.  They asked some good questions about the “housing bubble” and responded with well-thought-out answers.

Here are my answers, in regard to the Boston-area housing market.

Is speculation rampant? The author of the article uses the low turnover rate in New York City (7%) to support his belief that very few people are buying and flipping.  Now, New York is a bit different than Boston and other metropolitan areas.  New York City has many more co-ops and fewer condos than Boston.  However, I don’t believe there is a lot of speculation in Boston.  I am basing this on personal knowledge.  First, there really aren’t that many new buildings going up in Boston, although you might feel differently.  There’s a couple thousand new units coming on the market, each year, tops, in the high-end of the market.  Beyond that, not much coming on (which is partially responsible for the increase in pricing – supply & demand).

How cheap is cheap money?  Some believe it is actually cheaper to buy a home than it was five or ten years ago, because of the very low rate of inflation over the past several years.

Markus K. Brunnermeier, an assistant professor of economics at Princeton University, said that people should make decisions on whether to buy or rent a house based on the real interest rate, that is, the mortgage rate minus inflation. Instead, they tend to look only at nominal interest rates.

Mr. Brunnermeier sees a powerful link between inflation and house price trends. When inflation is high, he says, people often make a basic mistake in their mental accounting when deciding whether it makes more financial sense to rent or buy a home. They tend to ignore the fact that rents will rise steadily with inflation, while, because of the same inflationary effect, the value of their mortgage payment will actually go down in real terms. This makes them think renting is cheaper than it is and tends to draw people away from the housing market, which in turn can help drive down housing prices.

Therefore, it might still make more sense to buy than rent, if you believe inflation will rise quickly, over the coming months and years.

Are we getting more?  Here, I differ with the author.  He takes one specific property that has sold several times over the past fifteen years, to compare whether it costs more or less to buy, today.  The property he chose sold for $160,000 in 1988, and last year for $560,000.  You might think that lower interest rates today would help someone buy this property, today, but, unfortunately, the rapid increase in sales price completely wipes out any benefits due to lower rates.  In the author’s example, the monthly mortgage loan payment would have been about $1,100 in 1999, and $2,600 today.

However, Boston’s a different story, because prices haven’t risen, as quickly.  I don’t have the figures readily available, but I think your monthly payment would have risen more slowly, in Boston.  Plus, as the author notes, if you use inflation adjusted figures, that 1999 payment would equal $1,900 in today’s dollars.

Is buying power stronger?  Possibly.  In New York City, the median annual income isn’t enough to buy a median-priced condo.  However, that’s because there are so many low-income residents (on public assistance, students, the elderly, etc.)  If you take the average annual income, then there are more than enough buyers for all of the median-priced condos.  This is because some of the people in New York City are paid a ridiculous amount of money.

This is, to a certain extent, true in Boston.  We have the second-highest median income in the country (oh, alright, I don’t have the data to back that up, but trust me on this one).  Therefore, we have enough people willing to buy the high-end properties in the city of Boston.  Or, so I think.

More research needs to be done on this.

Complete article: Reading the Signposts

View Back Bay condos for sale and rent.

Boston condos for sale:

Back to Boston condos for sale homepage

Contact me to find out more about this property or to set up an appointment to see it.

Boston condos

Boston condos for sale


For more information please contact one of our on-call agents at 617-595-3712.

Boston Real Estate for Sale and Apartments for Rent


New Boston Condos for sale just listed TODAY

Sorry we are experiencing system issues. Please try again.

Click Here: Back to Boston Real Estate Home Search

Back to homepage: Boston condos for sale

Ford Realty – Boston Real Estate Google Reviews 2019


Call Now