The Boston Premium
Homes in the Boston area cost more than homes in most other places. The difference between median prices here and elsewhere is basically a "Boston Premium," an additional amount that people are willing to pay for homes near the Hub Of The Universe.
Something interesting happened to the Boston Premium during the housing boom: It got smaller. Boston housing became relatively more affordable.
The chart at right shows the ratio of the annual single-family median home prices in metropolitan Boston to median prices for the nation as a whole. In 2001, the Boston-area median home price of $331,900 was 2.12 times the national median home price of $156,600. By 2005, even as the local median peaked at $413,200, the Boston Premium had dropped to 1.89 times the national median. The data is courtesy of the National Association of Realtors.
This phenomenon highlights a great truth about the late housing boom: It 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.
This was true within cities: In Boston, the boom lifted Dorchester more than Back Bay. It was true within regions: In eastern Massachusetts, the boom lifted Lawrence and Brockton more than Newton and Brookline. And it was true for the nation: Prices rose most quickly in Nevada and Arizona and inland California and other historically cheap housing markets.
It is worth noting, of course, that the long-term trend remains strongly upward. Before the Massachusetts Miracle, local housing costs tracked the nation fairly closely. Now, despite a six-year decline in the Boston Premium, the local median still is almost twice as high as the national median.
But the compression still is noteworthy because it may suggest something about the future of relative home prices in a nation whose wealth and companies are increasingly distributed more evenly across the vast American landscape.
Credit: The idea of a Boston Premium is completely inspired by the "Orange Premium," brainchild of the Orange County Register's Jon Lansner.
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People particularly younger college educated workers are leaving the Bay State in droves and being replaced partially with immigrants who are not well educated. So qualified buyers are moving out and being replaced with renters. I think the premium will continue to decrease untill we keep our 20 and 30 year olds and their families...
Mass needs to be more affordable to younger families. The families that need the space of a home the most, ie 2 parents in their 30s/40s (one working full-time) and 2-4 children, can afford the least in this state. Who can blame them for moving out of the state?
The condition of much of the housing stock in Massachusetts is awful. Small cramped houses everywhere. Under-maintained split-levels all over the place. There are beautiful new homes out there, and some stunning historic districs, but they demand primo dollars. Sadly, in general, "family neighborhood" in Boston metro means small cramped houses in dire need of updates.
Massachusetts has so much to offer, that it is sad to see this happening. The state has the best school. The best hospitals. First class industry. Many beautiful parks nearby. An established mass transit system. Everything is in place.
One has to pay a premium to live in this god-awful climate. Or is the premium also to pay for experiencing everyone's grouchiness.
Boston housing became relatively more affordable.
Of course it didn't. A glance at the the historical median income to home price ratio shows the exact opposite.The so-called Boston premium indicates only that the rest of the nation became overpriced during the boom, too.
Oh, and FYI: Newton's median price increased 70% between 1999 and 2005.
There are other ways to interpet this data. Not just families were buying these lower priced homes. Within the region, there were alot of developers and speculators who bought large numbers of homes and flipped the homes. Some flipped multiple times.This could disproportionately drive up the prices of homes in areas outside of Boston. This could narrow the premium (if flipping of lower priced homes was more prevalent than higher priced homes in the more affluent areas, and if the flipped lower priced homes were priced proportionately higher).
What is the median income compared to median home price? I'm curious.
Young people are not moving out "in droves"...if they were, no companies would be locating and/or expanding here. Just because some of the college students (who moved here from out of state) decide to go back home, or move elsewhere after college isn't indicative of people moving out on a mass scale. sorry.
#5 makes a good point. Incomes certainly weren't increasing at the same rate of house appreciation during the boom, so speculation and "flipping", accompanied by easy credit likely contribution to the "premium" narrowing.
Young people are not moving out "in droves"...if they were, no companies would be locating and/or expanding here. Just because some of the college students (who moved here from out of state) decide to go back home, or move elsewhere after college isn't indicative of people moving out on a mass scale. sorry.
Yowza.
Massachusetts lost 2.2 million natives, and only attracted 1.2 million people from other states. Without immigrants, we'd be empty.
http://www.boston.com/realestate/news/articles/2008/05/18/at_a_loss/
Massachusetts is losing many of its native sons and daughters to other states and is having a harder time attracting transplants than the vast majority of the country.
Only about 64 percent of those born in Massachusetts still live in the state, according to a report by Northeastern University's Center for Labor Market Studies, which says it has compiled the most comprehensive data so far about the loss of state residents.
we've had 5 sets of newly-married friends up and leave MA for cheaper pastures. They didn't want to be working two jobs just to pay a mortgage and pay for childcare and have nothing beyond that to their name.
Fortunately, it's not a decision we are forced to make (yet) but I feel the crunch.
Try living in silicon valley or lower manhattan. I relocated from the bay area 6 months ago and believe it or not the prices aren't as bad here. I used to hear the same argument over there that "people are leaving because it's too expensive", but everyone I knew is still there. I'm not doubting the phenomenon exists, but there's two points I want to make - 1. The people who leave usually tend to do so on necessity (lower income), and 2. These "stats" are from the "state" of ma, not the city of boston itself, so it's a bit of a misuse of statistics. I think within the cities there are enough people with sufficient earning power to survive. This should be called the "city premium" since it's not unique to boston.
Well, Silicon Valley and Lower Manhattan (or any of Manhattan now, for that matter) are not great examples to use in order to say: hey, MA is not so expensive that people are leaving... I'm sure that Paris is more expensive than Boston too- that doesn't mean Eastern MA is fairly-priced, esp. for starter-type homes.
I'm sure some people are just saying "I've had it" and choosing to move for no other reason than high cost here, but it's more than that- people are willingly accepting transfers to other locations because they know that for less than $300,000 you can get a big new house with lots of rooms and amenities, a pool and a garage and, etc... as opposed to here, where if you're lucky, one gets an antique colonial that needs a lot of work, or a too-small Cape or ranch, or a fab condo in a gentrifying city neighborhood.
Plus, "there" one can own it on one income, so someone can work from home (or not) and take care of the kids, whereas "here", you both work, pay for day care...
People who say "Try living in Silicon Valley or Manhattan or Wellesley and Weston....." Drive me nutz. You are using extreme examples. If a young (25-33) couple who make $115k can't make it in eastern mass... well thats terrible for the long term viability of the state and region. Not everyone here makes $250k.... You need to be realistic... maybe you are making 175k and your wife is making 125 but you are the Minority.
Not everyone is going to be house poor just to own a home.
Yeah, but that couple making $115k wouldn't be making $115k somewhere else. The median house price may be 1.8x the national average, but if housing is 1/3 of pre-tax dollars, then salaries only need to be 1.25x the average to make up for that difference. And 1/3 of pre-tax dollars would be almost $3200 a month for that couple -- it's not hard to find nice housing for that price.
There's an interesting case that regulatory burden, not desirability, has been one of the biggest drivers of housing prices in this area, though:
http://www.hks.harvard.edu/rappaport/downloads/housing_regulations/regulation_housingprices.pdf
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