Prices still up in some towns

The fact the price drop is the steepest since Warren started counting doesn't exactly make it look like the market has stopped falling... Rather the reverse.

And we are almost through the spring market, which is usually a high point.

Editor should clarify if this is existing median home sale price, or exiting+new median home sale price. The construction and sale of ever more expensive homes in some of these towns may keep the overall median home sale prices high, yet existing home prices may actually be sliding a bit.

In general, the more I have read, the more convinced I am that the upper-tier towns (as measured by income, education, % HS graduates who go to college, and so on) will buck the home price slide trend to some degree. And as the months go by, data is backing up my hypothesis.

Now the fun part begins. I love reading all of the great posts from people talking about how crime and drug abuse and arson in these towns is out of control. Its absolute comedy to see people actually trying to convince others that when you are in Dover/Newton/Wellesley your life is at risk, and your home will be vandalized on a weekly basis. If you dont believe me, just look at some of the older BostonRENow discussions. Its hilarious!

It think it means higher income families ($250,000+/yr) are not affected as much as others. So higher price homes are still being sold as usual but lower price homes are not. That is why we see median price increase along with sales decrease in those towns.

My simple explanation: There aren't that many desirable places to live in the boston metro area, so the "better" areas have limited supply and high demand.

I can trot out the usual issues with median price, that it is influenced by more prices in the upper end, etc.

But I watch the market in Arlington fairly closely, and the large majority of listings in the sub-$500k range that were last sold in 2004-2007 are listed at a price below the last sale. This would indicate falling house prices in Arlington in this range, not rising. I can wrangle up some examples if anyone cares to see...

Prices are down in Arlington if you use the same criteria as the 12% drop article that you linked to. That was a 12% drop for the state's single family homes from April 2007 to April 2008. According to the Warren Group's website, the median price for Arlington single family homes fell from $479,500 in April 2007 to $460,000 in April 2008. I didn't check the other towns, so the same could apply elsewhere as well.

Of course, the oft repeated caveat still applies that the number of sales is pretty low and so drawing conclusions about values in all of Arlington from such a small cross section of the stock leaves plenty of room for error.

The same way that people say that the price declines in places like Dorchester do not matter, could be said for the price stability in these cities and towns.

Most of us could not afford to live in these places before the bubble, so the fact that they may be holding up better than most places really only matters to those that live there and those with the wealth to afford to buy in those areas, which is a small percentage of people.

Sales in Winchester plunged 33%, Lexington dropped 15%, Belmont sales fell 20%.

Sure, everyone wants to live there. Just not enough to, you know, buy a house.

No worries. I'm sure the selectmen in each of these tony towns has passed an ordinance repealing the law of supply and demand.

could the common element to all these towns be that they have nice centers?

The towns you mention; Winchester, Brookline, Belmont, Needham, Arlington have total populations of 181,000 combined. Massachusetts has a population of 6,345,000 people..... Yes those are very nice towns but they represent just 2.8% of the states population.... Thats a tiny sample size.... the rest of the 97.2% of residents live outside of these towns.

Guys (and gals), it's simple: The housing boom disproportionately lifted the prices of the least expensive homes, because the availability of easy-money loans disproportionately increased the buying power of lower-income families. Thus, housing prices in the higher-income, more expensive towns were less "bubblicious" at the peak of the boom, so they aren't falling like they are in the less expensive towns (where the rapid price increases were largely a function of easy-money loans).

I think this representation would be more useful if it also showed all of the towns that met the criteria of 10 sales per month, so that we can see what fraction of those these 12 towns represent

Dealio,

"I can trot out the usual issues with median price, that it is influenced by more prices in the upper end, etc."

What would you use instead?

Matt,
Your casual use of statistics is misleading. The sample size - based on population as you assert - is ~ 10x larger than it needs to be to obtain an excellent reflection of the total population. *

Further, the fact that "the rest of the 97.2% of residents live outside of these towns" is also misleading. It would be more appropriate to reference the population of the Boston area. Better yet, households in the towns and household in the Boston area.

* The minimum sample size needed to obtain results with a +/- 1% confidence interval with a 99% confidence level is 16,597. Translated, that means you could expect 1 in 100 samples to have results that are in excess of a 1% confidence interval.

WSJevons - I would use same house sale pairings. The issue with median price (as is often debated at length here), is that it can be skewed by more sales at the high end or more sales at the low end. So if you have a lot of high end home sales, or the low end homes stop moving, it would appear that prices are "rising", but they are not, just the median is shifting up. So I think it is misleading to say prices are rising in these communities. The median may be rising, but the value of any single property is falling, based on my observations of the market in Arlington.

And I understand that often median price is the easiest market tool, but I think its flaws must be understood. Because I certainly don't believe that cute 3 bed/2 bath SFH in a nice neighborhood in Winchester is selling for 38% more than it did last year.

Your casual use of statistics is misleading. The sample size - based on population as you assert - is ~ 10x larger than it needs to be to obtain an excellent reflection of the total population. *

Really? It's been a long time since my first stats class. But I never heard that you choose a "sample" by looking for cases that show the results you want first. I thought it had to be random. Or something.

Who knew?

Its been a while since I took statistics in college.... But my point is to address the article itself. The author is making the case that the state of Massachusetts has dropped 12% but that there are 10 or so towns that are not affected and in fact going up... My point was that the 5 towns I mentioned the total population in those twons is 181,000 vs the entire state of 6.34 Million residents... My argument is that 2.8% of the population in this state may be ok for now in terms of property values but that it doesnt paint a realistic picture of the remaining 97.2% of the population of the state.
I could pick the bottom 10 performing towns and cities and argue that its the end of the world if I ran just those 10 communities....
That was my point.

I don't understand the attacking nature of some commenters on this blog. My husband and I bought in Wellesley in April of 2007. I keep an unofficial watch on the market here in town to understand the ongoing value of our real estate investment, which we plan to own indefinitely, "for the long haul."

Lately, in Wellesley, I have seen listings for properties less appealing than my own (in my own biased opinion) at higher prices, and many of these homes are going under agreement at higher prices per square foot than my husband and I paid.

Could this be an indication that perhaps the real estate market is beginning to turn for the better, beginning with this pocket of towns? I'm hoping for all homeowners the answer to that question is yes.

Binyamin, to be fair, you should post your earlier map of "immune towns" right below this one. Then it would be easier to see that the two lists have only about half a dozen towns in common. Meaning, towns that went up before, are down now; and vice versa.

Which suggests that you're looking for an explanation for a phenomenon that doesn't actually happen.

To nar: As Binyamin alluded to, he has written previous blogs on this issue. If you search for last April's blog entries, he had a breakdown of all (or most) of the towns with sales of at least 10.

The number of sales in Wellesley cliff-dived 40% year over year in April. The notion that this dramatic collapse in sales heralds a "turnaround" is unlikely.

Marcus,

Thanks for the comment. There's no question the exact roster has varied by month since my first map based on data through February. That said, the results on the whole seem to me remarkably constant.

Five of the 12 towns on the current map have appeared on all three maps: Arlington, Belmont, Dedham, Needham and Winchester. Woburn and Melrose both are making as second appearance. Brookline appears for the first time, but only because it didn't have enough sales until now.

Walpole is the anomaly, but three of the remaining four newcomers to this month’s map are towns where median prices trended slightly down during the first three months, and now trend slightly up.

Similarly, many of the towns that have fallen off the map – Milton, Newton, Weston – are towns where median prices trended slightly up earlier in the year, and now are trending slightly down.

The point is that all of these towns are clustered in the same basic area, and have some obvious similarities.

I would also note, as I have before, that with each passing month, the accumulation of data will make this map more accurate – that is, more data will help clarify which markets are doing well.

The reason for the increase in home prices in these towns may be that many houses are remodeled or otherwise improved before they were put on the market. The proximity to Boston, good schools, and nice centers seem to make it worthwhile for both who remodel/sell and who buy into them.

"I would use same house sale pairings."

Dealio, I use the methodology you describe almost exclusively in markets where offers are out of whack with values or in markets that are not as transparent. I would argue that they are inter-related. Opaque markets and pricing based on subjective dealer quotes contributed to the dysfunctional mortgage backed securities market.

The real question is: Why is paired sale methodology not more widely accepted? Is it the inertia of historic market practices?

"I could pick the bottom 10 performing towns and cities and argue that its the end of the world if I ran just those 10 communities...."

Matt,
You are exactly right! I had that same argument with a friend who just purchased in Needham (Needham/Newton line) based on increasing home prices.

Sorry if my post sounded alternately trite and curt. Apparently, Socratic method isn't effective if you write like crap.

Marcus,
You are correct wrt to stats. I was answering the fallacy with a fallacy (ignoratio elenchi ) in a socratic setting.

Binyamin,

While I applaud your use of hard data to back your opinion I have to question your logic . Most agree that median price is a poor measure of the overall health of a housing market. To infer that an area is some how “bucking a trend” simply because of an increase in median price is a giant leap. Sales to inventory ratio or recent appreciation or depreciation of a property would be far more telling. As you point out, only Five of the 12 towns made the list for each period, so what happened to the towns that fell off? Did their schools falter? Their proximity to Boston change?

“Home prices and incomes are higher than for the region as a whole; the local schools are better; the commute to Boston is shorter; and the housing stock is mostly single-family.”

Knock Belmont off the list for May; Median sales price May 2007 was 794k, as of today it sits at 640k for 2008.

Can't we all just get along? Great stuff Marcus and Matt. I think the one thing missing is that these towns have is low tax rate vs. school value. When I move back to MA, the one thing I will look at value of the schools vs the tax rate. Our ex-(and future) gov down here in MD always says he can tell you how good a school just by looking at how many cars are in the parking lot on PTA night. My point is, for me it's all about the school.

It's absolutely true that the areas where the greatest bubble activity occurred are
the same areas where the collapse in residential real estate has been greatest, but the entire market from top to bottom is weak, and will continue to be weak because house prices are still out of whack with (falling) incomes. What's more, the cost of financing a home, which all but the very wealthy engage in systematically, is hardly helping. In sum, the housing market will be in the doldrums for years.

In addition to some of the good points already mentioned, I think this is also simply a case of a dead cat bounce in the market.

I think you had many people that got priced out leading up the bursting of the bubble and now that prices have dropped 10 to 20%, those fence sitters think they are getting a good deal and are eager to jump into the market. Of course, prices have further to fall, so these people are no different than the people who missed out on buying Yahoo shares at $200 and when they dropped to $150, they though they were getting a great deal. Of course, we all know how that ended.

Another flaw or perhaps improvement would be to break down Boston by its neighborhoods. While Mattapan, Roxbury & Dorchester are struggling with forecloseures, neighborhoods such as South Boston & West Roxbury continue to thrive.

If you want an education of what can happen to the US housing market... Just look at JAPAN and their own meteoric rise in property values in the 1980's and early 90's and then look at the unprecedented collapse from the early 90's till now....

They had 15 years of decreasing property values... This from a nation that is an island where land is at a premium. If you think that can't happen here you are sadly mistaken. Sure, Down 64% prolly won't happen here in USA but down 32%... Its possible.

http://www.nytimes.com/2005/12/25/business/yourmoney/25japan.html?adxnnlx=1135549784-il3tR2sL5QVQTcL7FSphqQ&pagewanted=all

"Guys (and gals), it's simple: The housing boom disproportionately lifted the prices of the least expensive homes, because the availability of easy-money loans disproportionately increased the buying power of lower-income families. Thus, housing prices in the higher-income, more expensive towns were less "bubblicious" at the peak of the boom, so they aren't falling like they are in the less expensive towns (where the rapid price increases were largely a function of easy-money loans)."

This pretty much exactly summarizes my take on the housing market. Kudos for being able to phrase it so simply.

Hard Rain, spot on. Look upthread, and we have a fair number of commenters accepting observation and speculation as fact.

You can't simply cherry pick towns that happen not to show median price declines in a month, and declare them immune--especially when most of the towns have shown declines in other months. Median prices can rise even when the market falls, as long as sales happen to skew toward higher priced properties.

As I noted, the number of sales is down dramatically even in the "immune" towns, showing they aren't immune at all. So there's no need to theorize that the towns are protected by proximity to Boston or some other desirable characteristic, especially since other desirable towns like Newton have not been spared a drop.

This is all starting to sound like the "contained to subprime" mantra, which got a lot of reassuring head-nodding from everyone until it was proven to be bollocks.

It's interesting to see that Woburn has appeared on this list along with a number of pricey towns. Woburn is typically considered a "blue collar" working type of town. Perhaps it is showing that Woburn has come a long way in the last couple of decades and is considered a much more desirable place to call home. However, I really wonder for how much longer it can maintain this pace.

Marcus said "You can't simply cherry pick towns that happen not to show median price declines in a month, and declare them immune"

Technically, Binyamin wasn't looking at a single month, he was looking at the year-to-date sales. In fact, if you do look at just a single month, two of the five towns which have been gainers on all three versions of the map actually fell in price. Both Arlington and Dedham had a lower median in April 2008 than April 2007. Dedham fell from $362,500 to $349,750 and Arlington fell from $479,500 to $460,000.

Using the year-to-date median is good in that it increases the sample size (albeit still small), but I think that it negates the assertion that appearing on multiple versions of the map conveys strength. Of course there are going to be towns that make repeat appearances - there is a large overlap in the data used for each map. The previous map covered January, February, and March (assuming it came out last month). This map covers January, February, March, and April. That's a 75% overlap in the time period covered. The list of towns is slow to change because the data being used is largely the same, not because the towns are displaying repeated strength.

You would need to use non-overlapping time periods to support the assertion of repeated strength. For instance, comparing January - April from 2006 to 2007 would be an equivalent comparison which should also show gains if these towns are immune. In fact, the median price for single family homes in all five towns declined using the same year-to-date time period from 2006 to 2007. Check The Warren Group's Town Stats to confirm - Arlington, Belmont, Dedham, Needham, and Winchester all fell.

I totally agree with Dealio. The only difference is that I watch Brookline. What I see is that properties that were sold in 2005-2006 and are being sold again now, mostly go for less money then couple years ago (the exceptions are places that were nicely renovated in the meantime).

I don't see much of a change in Brookline, Newton, or Back Bay. I wouldn't count on seeing any 30% "crashes" some of you are hoping for. I find it a little amusing that some of these same posters show up again and again claiming how happy they are renting and how prices are going to "plunge". Sounds like the reality is deep down they don't want to rent and are hoping they can buy something for pennies on the dollar. While this may happen in roxbury or dorchester, it's foolish to think that prime areas with upper income earners are under any stress that would cause them to sell cheaper. Property prices in some areas do reflect the desirability of the neighborhood, school, professional makeup of the residents there whether or not you want to believe it.

What you are seeing in terms of price action is lower priced properties and neighborhoods that had a lot of speculative activity and loans that shouldn't have been made in the first place. However I don't think this means that all areas and properties will be experiencing the same stress.

Yup, deep down I am just bitter than my rent amounts to a paltry $800 a month; I don't pay property taxes; I don't pay a condo fee; I don't pay maintenance costs; I don't pay for sewer and water; I don't pay to heat a 3,000+ sqft McMansion with oil at $130 a barrel; I don't commute 40 miles to work each way (because the only way to afford a home is to be well outside 128) while paying $4 a gallon; I invest over 30% of my income between a retirement and non-retirement account; and I'm not sitting on a depreciating property.

That whole "bubbilicious" comment doesn't recognize that fact that people trading up back then were able to get significant gains from selling to that growing entry level price point. People were getting like $150k plus in sales that they could plow into a new house. When it was high tide, all the boats rose.

I would be a bit concerned for the "richer" towns. Lots of these folks are used to overspending for education, vacations, lawn care, social life, etc. Many are used to living the good life. All those luxuries cost more and more and many can't keep up with the Jones any more. Having a boat nowadays costs a real bunch. Muffy and Buffy's prep school also costs a lot too.

What people continue to forget is that it is real prices, not nominal prices that are important. Even if nominal prices don't budge, the real value of real estate will drop roughly 7% this year (using shadowstats.com inflation data).

bostonbubble, good catch. Of course if you keep using the same data, you get essentially the same results! I still find it remarkable how people go on to "explain" why these towns are immune when the facts show no such thing. The power of faith, I guess.

Quote: "While this may happen in roxbury or dorchester, it's foolish to think that prime areas with upper income earners are under any stress that would cause them to sell cheaper."

Prices in your prime areas fell during the last downturn. Why would upper income earners be immune now and not last time?

The bottom line is people can still afford the prices. Whether or not some of you like the prices (or what you would like them to be are a different story). People are still buying and selling at healthy prices in these markets. The income levels are there to support it, and "mcmansions, 4$ gas guzzling suv's etc" don't really apply to boston metro much do they? The last time I checked this area is pretty dense and has great public transport. It seems some people only want to read news that supports your viewpoint and get "offended" when something is published that doesn't match.

Regarding "real" vs "nominal" prices, many people who are buying a home don't care much if "real" prices drop a little because guess what? In the long run both the real and nominal prices will go up, why the debt gets devalued. If I need a place to live for the next 5-10 years and have the means to afford it, I'm certainly going to be happier in a place that I own and can customize than a low quality $800 rental (which wouldn't meet my needs at all).

I'm wondering would it not be better to group these sales by size of the house and see how house that are (say 1800 sq. ft to 2400 sq. ft or a different range) have increased/decreased in per square foot rate in each of these towns. That I think would provide a better insight.

Using median prices is meaningless if the number of sales are low. 10 sales mean nothing. What if majority of those 10 or 15 sales are for homes that are 3500+ sq. ft. homes.

People are still buying and selling at healthy prices in these markets.

The number of sales in "these markets" has collapsed. So they are buying and selling a lot less.

Let's stick to the facts.

The "facts" are there still isn't a lot of inventory either in desirable areas, this isn't Miami or Las Vegas. I would hardly say that anything has "collapsed".

Yes the number of sales in "these markets" has collapsed, but if you keep your finger on the pulse of "these markets" you'll notice something interesting - most of the few properties that end up on the market right now are less than ideal.

Look in Wellesley, for instance, which i cite only because I'm more familiar with this market than others Binyamin called out. You'll see a lot of properties on Route 9 or other high-traffic streets, or properties that never sold a year or two ago, which are back on the market - they weren't desirable then, and aren't desirable now. Buyers will lowball these sellers, because location is not great, or because the properties need improvements, etc and sellers may accept lower prices, because heck - if they're trying to sell in this market, don't we think they really **need** to sell??

I'm all for sticking to the facts, but as any good statistician knows, data can be manipulated to say anything you want. For real estate especially, when each property is unique, I think it's important to dig deeply, and take a close look at the individual properties to get a sense of what's happening.

mrs, you are right that there is a lot of dreck on the market. However, in Wellesley, there are currently 134 single family homes for sale (with 81 priced above $1 million, so most of them can't be dreck). In April, only 19 single family homes sold. Using those numbers, we get over a 7-month supply, which historically spells further price depreciation.

I read this blog because we haven't bought yet (we are still renting and saving), and I am interested in the stats people like Marcus and John bring to this blog. What I don't understand are entries from buyers past who continue to try and justify their purchases which are most likely underwater no matter what tony neighborhoods they live in. If you just bought in the last two years or so, I really don't have much faith in your real estate theories, but I do hope you enjoy your homes.

Higher LTV/CBLTV requirements by mortgage insurers will prevent many people from being able to obtain a loan irrespective of ratios and credit score. (http://mgic.com/guides/underwriting.html)

The affordability question morphs from size of monthly payment to size of down payment - which will double under new guidelines.

Customers without the required down payment will be frozen out of the market - even if they gross $300,000 per year. Less customers = lower prices. Boston and area has the potential to get very messy, very quickly.

I'm all ears to see tangible stats of this "crash" a few of you are hoping for. So far I have only seen cases of selective use of data and confirmation bias to those wishing for lower prices. FDIC's historical data since the 70s does *not* show any collapses in value in boston metro (5yr periods of nominal value), nor indicate that there will be in the future in nominal terms. I think these outlying towns will lose some value since they really weren't very desirable and got "caught up in the hype", and there will probably be general sluggishness in the market as it returns to normal transaction volume. For several years the transaction volume was higher than normal, so lowering volume is somewhat normal. It doesn't change the fact that there is a limited supply of housing stock and high demand from students and professionals in the area.

Good Post LynnLS... I am in the same boat. Renting for 1,100/mo that includes heat... Waiting to buy a 1,600 sq ft Cape in a suburb outside of 128 but inside 495.

I have a feeling it will get much worse particularly if interest rates get to 7 or 7.5%... If we see 8% or higher well all bets are off.

My parents told me their first home was financed with 20% down but the rest at 17% in the early 1980's......

"there is a limited supply of housing stock and high demand from students and professionals in the area."

You are assuming they will be able to obtain loans. Those without at least 10% down payment and > 680 credit score will not be able to get loans. This is not conjecture on my part, it is from the MGIC underwriting guidelines. That wipes out the students. Urban centers tend to have more young professionals. Young professionals mean higher debt load from school, lower down payment ability, and are at the most mobile point in their lives. This translates to lower purchasing power and shorter stays in one place. Why would they risk levering up if they are not certain they can ride out the 5 years?

"FDIC's historical data since the 70s does *not* show any collapses in value in boston metro (5yr periods of nominal value), nor indicate that there will be in the future in nominal terms."

I am not aware of FDIC housing related data. However, the OFHEO's widely accepted Housing Price Index* for the Boston MSA indicates that if you purchased a home in Q1 1987 through Q3 1990 and sold after five years, you would have lost between 2 and 11% of the nominal home value.

I then did the same using the Case Shiller ^ index for the Boston MSA. If you purchase a home in January 1987 and sold in January 1992, you would have lost
15%. In fact all 5 year holding periods beginning in Jan 1987 though June 1990 would have resulted in a loss. Incidentally, if you purchased a home in March 2004 and sold in March 2008

Lastly, a wise old trader told me once "You can't eat nominal food." Actually, his language was a bit more salty.

* The HPI is a weighted, repeat-sales index, meaning that it measures average price changes in repeat sales or refinancings on the same properties.

^ Methodology: http://www2.standardandpoors.com/spf/pdf/index/SP_CS_Home_Price_Indices_Methodology_Web.pdf

To finish my thought.

Incidentally, if you purchased a home in March 2004 and sold in March 2008 you would have essentially broken even - nominally speaking.

So in 4 years you have broken even, what exactly is the problem again? Keep in mind you have better living conditions, a tax write off and would have built some equity by then as well. Granted not a huge amount, but still.

My only problem with some of the commentary here is this, some people seek to apply stats to suit their preconceived viewpoint. For example, looking at data from an entire region and assuming every town within must exactly match that data. In reality this isn't the case. Some towns will buck the trend and some will have steeper losses, nothing new here folks.

And I'm at a loss as to why a large population of professionals and students would be a bad thing. Where do these people want to live? SF, Chicago, Boston, NYC - All expensive cities (even more so than Boston). Having a large base of renters does prop up prices in the core, take a look at the cost of rentals many students from the major schools are paying and it isn't cheap. I'm not in any way saying students and new grads are out buying up tons of homes (although some do get starter condos), my point is there isn't much housing and having a large continuous supply of new people further limits the housing stock in the city. I'm really not interested in the suburbs and that's a different story.

We get it.

Boston Proper is immune.

We get it.

Quote from John: "I'm all ears to see tangible stats of this "crash" a few of you are hoping for."

Check out the Warren Group Town Stats for Newton single family homes (which you mentioned) or condos in the Back Bay (which you mentioned) during the last downturn. Prices fell. I'll save you the time of replying and retort for you: "that's not a 'true' crash because prices didn't fall enough to meet my criteria, and I'm not going to consider adjusting for inflation because that's too sophisticated for my clients."

"My only problem with some of the commentary here is this, some people seek to apply stats to suit their preconceived viewpoint."

I can't disagree with that. However, you put out stats that were irresponsibly false. It is fact - not interpretation of statistics - that the over 5-year holding period people lost money.

"So in 4 years you have broken even, what exactly is the problem again?"

You broke even on a nominal basis. In reality, the value of a dollar fell because of inflation. This leaves out the cost of maintenance as well.

"Keep in mind you have better living conditions"

This is just wrongheaded. The better living conditions stem from owners of the unit putting money into rehabbing or remodelling to their own specs or the buyer accepting the tastes of the previous owner. I took a quick look at Gibson Domain Domain website; you can still rent a luxury unit for less than you can purchase. This cannot happen if you can obtain better living conditions through ownership.

"tax write off and would have built some equity by then"
The tax write off benefit is only if your interest is in excess of the standard deduction and/or personal deduction without mortgage interest. The real benefit is only for interest payments in excess of the standard and/or personal deduction without mortgage interest.

If the value of the home does not change over the holding period, there is no difference between the equity gained and putting the money in a savings account with 0% interest. If inflation is 2% per year, the dollar of equity in year one is worth $0.91 in year 5.

If you look at real estate as an asset, then you also have to consider the returns of alternate investments.

"I'm at a loss as to why a large population of professionals and students would be a bad thing."
I didn't say it was a bad thing. What I did say is that students and young professionals will not be able to afford a mortgage anymore even if they can afford the monthly payment because mortgage insurers require substantial down payments. Also, young professionals likely will not want to buy a home when they are uncertain if they can hold for long enough for the market to come back (if it falls during their ownership). Lastly, the young professional base in boston is declining because of high expenses and, as someone else on the blog noted, the professional base is declining in Massachusetts. The decline in people mean a decline in demand for homes and rentals . . .

"Having a large base of renters does prop up prices"
This is true for normally functioning markets. However, in periods of housing market decline people that would normally sell their home will rent it out and ride out the market. As more of the owner occupied to rental units come on line, rents decline to an artificial level. Why? owners faced with selling a loss chose to lose a little money on the monthly rental until the market comes back. That is a rational decision for them because they can sell and lose $20,000 now or they can lose $1000 per month until the market comes back. If rents are depressed, so then must prices of the units fall because the cash flow from renting is unprofitable. (Who would willingly buy an investment that is guaranteed to lose money month after month?)

I can see why prices are up in those towns - they're all very nice and have great school systems. If I could afford any of them, I'd be buying there myself!