I received the following email in my Inbox, earlier today. Interesting question, followed by my interesting answer.
Great blog/website (although you seem to have become more tempestuous, capricious and uneven, recently).
I noticed that the “North East” of the U.S. has had an increase of new construction starts in September 2007 of 45.4%, and a 10% reduction in existing-home sales, but median price up by 0.5%. Pretty good!
My question is, are you seeing a general improvement in your region which may be an indicator of better things to come sooner than I think for the rest of us?
My response, after the break.
We seem to be doing quite well, in Boston and in Massachusetts.
In truth, these are two different markets, you know – Boston and Massachusetts? And, of course, within Massachusetts, the local markets in each of Boston’s 351 towns and cities are distinct, as well.
Several of the poorer towns & cities, Lynn, New Bedford, Springfield, and Lawrence, have been hit by foreclosures. Even in some of Boston’s neighborhoods.
However, the city of Boston still has not seen any price drops, overall. Again, each neighborhood is different, but citywide, median and average prices haven’t dropped. It’s an odd thing. And, subject to change, of course. Here, it’s a matter of supply & demand. There are simply more people who want to own than there are available properties.
Having said that, we have encountered the same slowdown in sales volume that you are seeing, and that other cities are seeing. I think sales are off 25% year to date, compared to last year, and I don’t think September & October were any better. In fact, I think they were slower than previous months. Certainly, slower than last year, and last year wasn’t great, either.
Personally, I haven’t had any first-time homebuyers contacted me in over two months. I tend to get younger clients because of my web presence – most young people search online, I pop up, then they contact me.
Not this fall. It’s disappointing. Fortunately, I’ve had a couple high-end clients contact me (also from my website), so this should make up for the loss of the other business (and then some). I should do about as well this year as last, revenue-wise. And, based on my projections, 2008 revenue should double, and 2009 should triple.
I sometimes get criticized for my views – some who read my blog say I paint a too-rosy picture. Not true. It’s just that, up to now, Boston has been different. Some people hate to hear that! Or, they say, “just you wait!” Possibly. As I say, it’s a surprise we’ve done so well, while the rest of the country has suffered. However, our local economy remains strong, so really, why would people stop paying as much for their properties?
Many people who live in Boston fail to realize how many wealthy people live here. Plus, some of it is a result of the very expensive downtown neighborhoods offsetting the prices in the lower-priced neighborhoods. It skews the numbers, a bit. But, mostly it’s supply and demand. Everyone wants to live in a very small area – the Back Bay, Beacon Hill, and South End neighborhoods. They will pay a premium to do so. Or, simply move out of the city.
However, as of now, there are more people who want IN versus OUT. So many young couples, with children!, are moving into the city. Single people might not be able to afford it, lower-income people might not be able to afford it, young people might not be able to afford it, but plenty of others, can. Fortunately, these others are investing in their communities, by becoming active in what goes on in their neighborhoods, by taking an interest in local politics and policies.
That’s the part that excites me.
Earlier real estate “bubbles” in the Greater Boston area had a glut of inventory. Not so, now. When we first saw trouble on the real estate horizon, back in spring, 2006, there was a huge jump in listings on the market – I think it was over 3,000 condos, at one point. Now, you’re down around 2,400 (increased over the past month due to the fall market). I think it was at 2,000 during the summer. That’s equilibrium, actually. Lower than 2,000 units and you don’t have enough supply for buyers, and prices would probably rise. Over 2,200 is a glut, a “buyer’s market”.
I’m not an expert on the suburbs. I think there are areas where there are more units for sale than buyers. Sellers have not dropped their prices by enough to encourage buyers to re-enter the market, en masse. Still, I think almost all owners who sell are doing so at a profit, just not as much as they would have, two or three years ago.
Someone who sells this year who bought in 2005 or 2006 may break even, or lose money (especially after including commissions and closing costs). I’m not sure it was ever otherwise, however (except for 2000-2005). Most people who have to move so quickly, after 2 years, are probably doing so due to some unexpected event, such as job loss or relocation. If they are relocating, they should make their employers pay the difference!
If they are losing their jobs and can’t pay their bills, well, that’s not necessarily something that is the fault of a slower real estate market (unless they are a mortgage broker, ha ha!).
I can’t see any reason why we won’t have a stable, but uninspired, local real estate market, for the foreseeable future. Again, we have stable employment, low inflation, low mortgage loan rates, etc., etc., etc. Apparently, the average consumer is not freaked-out by war or high gasoline prices (although consumer confidence is at a 5-year low, right?).
The majority of people are unaffected by what happens “in the press”, one way or another. They make their decisions based on how much money is in their pockets, right?
Does this sound about right?
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