Boston market better for mansions

"this map, showing where prices are rising (and falling) in the Boston area."

According to the paper-money blog's "Arlington artifice" series [tinyurl.com/229s3j], Warren Group data shows that home prices are falling dramatically in Cambridge and Lexington (high priced), but have barely changed positive or negative in Arlington (relatively low priced). So Warren Group data does not appear to support the claim that "higher-priced areas [are] outperforming lower-priced areas."

Also, Zillow is infamous for the unreliability of its pricing "zestimates." Do you have any reliable data to support the "glass half-full" hypothesis?

Sunny Jim,

The referenced post reports an analysis based on Warren Group data. We looked at towns with at least 20 single-family sales so far this year, and found a strong correlation between higher median sales prices and lower percentage declines in median sales prices.

Cambridge was excluded; only 10 single-family sales through February. As I mentioned, Lexington and Wellesley show a downward trend, but that's why we rely on statistics rather than anecodotes -- the data clearly shows they are exceptional.

As for Arlington, the median price so far this year is up 20 percent, while sales volume is down 50 percent.

2007: 42 sales, $437,500
2008: 21 sales, $526,000

Warren Group data for all of 2007 shows Arlington sales dropped 5.4 percent while median prices dropped 3 percent. Warren Group reported an 8.4 percent drop in statewide sales and a 4.6 percent drop in the statewide median price, so Arlington did better than most places.

More importantly, the broader point is not just about Arlington. The broader point is about a statistical analysis of all towns and cities that shows homes with higher prices are holding more of their value.

I would be interested in how high priced new construction within the past 8 years has done compared to well established construction in the Boston area. The stability of the areas in question I believe is as relevant as the asking price. High priced new construction has occurred in areas outside well established communities because of the dearth of buildable land in these areas. I would guess that these areas are less likely to hold their value, regardless of home price. This would be supported by a tendency of communities that directly border Boston to perhaps hold their value better than new construction of similar valuation (prior to the recent price drops) further from the center of Boston. In suburban Wash DC, Chevy Chase and Bethesda are good examples of areas that hold value. I lack the data that you realtors may possess, but I would guess that new construction lower end priced units have also done less well than similar priced mature units in well established communities. It is my opinion that location still trumps all and that in this case, price is really a marker for location within mature previously high priced communities.

Simple answers.

First, high priced houses in the boston area are owned by people with high incomes. Much fewer forced sales and foreclosures as a result, which keeps prices up.

People can also afford to keep trying to get their price for longer.

Second, there is always a flight to quality in markets like this.

And finally, if we take the very high priced homes bracket, the buyers for that tranche made a LOT of money in the last few years, and even last years bonuses weren't bad. The demand for very expensive properties - say over 2 million, remains pretty high.

Binyamin, I believe that you're missing the point. The 1.6 percent difference for Arlington is the same as the background statistical fluctuation, so there is no statistical basis for saying that Arlington is doing better or worse. The improvement would have to be significantly larger than the background statistical "noise" for this claim to be true, and it is clearly not. That is the point: there is no statistical justification for the claims being made in the Globe about Arlington's "hot" market.

And I don't believe that you have addressed the larger point either: which data supports the hypothesis that the high end is holding value better? Do you mean the Zillow data you originally cited? Or Warren Group data? If it's the Warren Group's data, there does not appear to be support for that hypothesis at all -- the median prices in high priced town are being hammered.

Finally, I do not see support for this anecdotally either. The first house for sale on my street this spring was a $2+ million dollar foreclosure. Moogling the owners suggested a multi-million dollar ARM that obviously went sour, and possibly a "jingle mail" business decision.

The subtext for the larger point about expensive homes holding their value is that the bursting of the housing and mortgage bubbles is mainly a "subprime" problem. It isn't. Buyers across the board signed up for toxic mortgages they couldn't pay -- that's why we're seeing plummeting sales and prices in inexpensive and expensive neighborhoods alike. That's why my ex-neighbors in a fancy neighborhood defaulted on their $2+ million dollar home. That's why, e.g., fancy La Jolla has nearly 100 foreclosures this month.

If I'm wrong, please correct me. Which data, specifically, supports the claim that the high end has "retained value better"?

I’d like to add a few points.

First, looking at the median selling price for any individual town or small subset of towns in the surrounding Boston area during the first few months of this year is not very sensible.

As I noted in my post, single family homes sales during Jan and Feb were extremely weak sitting at 90s recessionary era levels (For Feb there were: 9 sales for Arlington, 6 in Cambridge, 3 in Bedford, 5 in Watertown, 3 in Somerville, 11 in Medford, 5 in Brookline... etc.).

This makes year-to-date median prices jump so wildly (up or down) that they are effectively meaningless.

Look at the year-to-date results later in the year (preferable during the Sept - Dec timeframe) for real clarity.

Another point to keep in mind is that what Appelbaum is pointing out is essentially true.

If you look at the 3 tier breakout of the Boston S&P/Case-Shiller index you will see that the high tier has declined less than the lower two tiers and that the low tier has declined dramatically.

One point though, the recession that is shaping up I believe will hit New England particularly hard, in fact I am starting to see some significant deterioration in hi-tech/bio tech/pharma as well as significant trouble for commercial real estate.

As the job picture worsens significantly over the coming months it is all together possible that declines to higher priced homes will essentially catch up with lower prices homes as the bleeding edge runs up the income chain.

There are MANY middle to upper income Bostonians (you know who you are) who are effectively house poor and hanging by a thread, dipping into retirement savings and taking other extreme measures to make it by… eventually though many will fail.

Sunny Jim,

This will be my last post on this subject. I've written as clearly as I can that we analyzed Warren Group data and found a significant correlation between a town's median housing price and the percentage decline in the median housing price, for 2007 and for the first two months of 2008.

Not Zillow. Warren Group.

Not anecdotes. Statistics.

Not La Jolla. Massachusetts.

It happens to be the case that Zillow and Case-Shiller show similar trends, I presume because the trend is real.

As for Arlington, there is no margin of error in the 2007 data. It's not a sample. It's a complete record and a matter of fact that the market fared better than the average for Massachusetts. That said, you're right that it didn't fare much better -- just better than most other communities.

But again, this isn't about Arlington. And so I'm going to move on. Thanks for reading and participating.

As for Arlington, there is no margin of error in the 2007 data. It's not a sample.

Sorry, I've got to disagree - you're using it as a sample. You are using the houses which were sold in 2007 as a proxy for the value of housing in general in Arlington. The houses which were sold only represent a small fraction of the entire stock. It is unlikely that the median that you are using is exactly identical to what the median would be if you calculated it using the true market price of every single house in Arlington. This approximation is imperfect because it can be skewed by the types of properties actually being sold. For example, fewer low priced homes on the market (e.g., because people are less pressed to sell affordable places when times get tough) will actually make the median rise even if no homes have changed in price. You have to allow for errors like this when projecting a handful of sales onto the value of an entire town.

Hmm. This blog seems to have suddenly been taken captive by two idee fixe:

The bottom is here! (As long as you ignore a recession that is just starting and focus only on one number or two.)

and

Location, location, location! (As long as you exclude Cambridge, Lexington and Wellsley.)

Well, I certainly hope that angle helps sell a few more ads to Carnegie Abbey.

Oh, my. See what happens when you ask the public to comment? They comment.

Sir, welcome to my world.

Thank you John K for the piquant observation! I was wondering where you have been!! I assume you're swamped by the incredible Spring market we're enjoying here in Boston's Golden Triangle (with axes in the Back Bay, South End and Beacon Hill) and haven't had time to comment. Lord knows I haven't!

But let me take a moment out of this very busy selling season to note this: so many gloom & doomers here on this blog! All I can say is that here in Boutique Boston it's as though the recession has only served to make our market even hotter than it already is! Prices continue to increase at double digit rates, cranes dot the skyline, and smiling happy faces continue to crowd our Sunday open houses. So much so in fact that my only wish is that I could charge admission!

Desireable nabes never lose value. Far too many people crave the urban lifestyle that we offer here in the center city market that demand has yet to slacken. Starved for buyers? Not here. If anything we're starved for sellers!! Please, more listings!! For every South End property I get I have a list of at least 100 buyers ready to pounce. Need evidence? 285 Columbus Lofts: sold out. The Bryant right down the street? All units under agreement. The Modern is wrapping up final sales. Penny Savings Bank? Gone. Sold sold sold. Every morning I look at the MLS and all I see is UAG UAG UAG (under agreement). Fantastic!

So while I must express my sympathy for sellers in areas such as Lawrence, Worcester and Brockton, all I can add is this: Bartender, if this is a recession, please make it a double!!

John K, so true - why bother listening to those who disagree with you when you are never wrong? I think Binyamin should follow your lead and start deleting comments he doesn't like.

Sarcasm aside, I think Binyamin is doing a great job and that the comments by the public add a lot to the discussion.

I assume sunshine and lollipops is joking. Though I am not sure.

I have recently been in both Penny Savings, and 285 lofts, and the broker seemed completely unaware they were sold out. Funny that. Half sold more like.

I think Binyamin has handled the public commentary quite well.

Er, and what makes you so sure he's not already deleting them?

"Er, and what makes you so sure he's not already deleting them?"

Unlike your infomercial of a blog they welcome opposing views....

I dont agree with the viewpoint of the article. I can locate multuiple individual million-dollar plus homes which have turned over multiple times since 2000. The trend is clear - prices on high end homes in Boston and Boston Metro are selling for an easy 15% or more off their peak. Email me if you want addresses. Ignore zillow estimates and "price indexes" whcih artificially inflate home values using newer more-expensive construction being added to the mix.

Good article on CNN Money. Manhattan luxury housing is up in price by 10% Jan 2007-Jan 2008.

However, if you omit only TWO new buildings, it is actually DOWN 8%!

Again, a few new ultra-expensive units gives the perception that all luxury housing is up. The reality is that most luxury housing is down, but a few people were able to purchase mega expensive new units which did not exist one year ago.

If you want a real history of home appreciation over the past 30 years (the NAR loves to tout these numbers), you should chart out home values of all homes built 1978 and before, since 1978. You will be shocked that real existing home appreciation is below inflation, and when considering required maintenance and updates, virtually negative.

If I bought a new Bentley, and had that be my second car, where my first car was a 1997 Taurus, my average car value increses from $3,000 to $100,000. It would not be fair for me, in this scenario, to say "Wow, that Taurus was a great buy since my average car is now worth $100,000!".

Hard to tell what's happening with prices because there are so few sales. In Newton there are 93 listings over a million dollars and only one sale for March. In Sherborn another high end town there are 73 listing and there has been one sale all year...