Boston less worse than other cities

I think its clear that Boston will outperform on the way down, as I think Marcus and I have said. It will still drop rather noticeably, but a number of price supports and supply constraints in the area will stop Boston from droppin as dramatically as Miami.

Where I disagree with the Zeitgeist is how much Boston will drop - many have said not at all, and I continue to think it'll be down 25-30% from peak. Miami will be far worse.

But relative performance will still have a huge affect. 25% drop will put many boston area people underwater on their house. At a certain point, does it matter if you are 5% underwater, or 15% underwater? Can you be broker than broke?

Just as Boston will outperform based on the fundamentals, I'd expect certain towns and areas around Boston to outperform. Classic flight to quality in a real estate downturn. Really nothing surprising about that, it's 1988-1996 redux.

What I'm amazed about is how few people remember the last real estate recession here, even though it was only 20 years ago. We are pretty much following the same pattern through - though the employment aspect is interesting and challenging to predict.

I'm eagerly awaiting the congratulations of those who poo poohed Marcus and my predictions months ago of how the spring market would turn out...

Boston didn't have the run up in prices like many other areas, so it makes sense that the price declines (at least up until this point) have not been as great. Boston is by no means immune, as many have suggested. All real estate may be local, but the recession is nationwide, high energy and fuel prices are nationwide, the credit crunch is global, tighter lending standards are nationwide, etc. which are all a negative for real estate.

And even though prices are "only" down 15% or so, that is the nominal price decline. With surging inflation, the real price declines are beginning to fall through the floor. Slice 5 to 10% off the real value of real estate every year thanks to the FEDs inflationary policy.

a comment on "all real estate is local" as Steve's excellent comment reminds me.

Locality is a very important factor in real estate, but its importance is very often overstated. There are many other factors that go into real estate markets other than location - jobs, mortgage rates, credit availability etc etc. Location is best thought of as a major variable on the demand side of the equation. Ignoring the other demand side variables and the supply side variables is not exactly likely to lead to good analysis.

The problem with the phrase "all real estate is local" is that it is often used (successfully) try to get buyers to ignore other factors. I find the use of the over-statement in certain contexts to be an excellent indicator that the individual in question has no actual understanding of the real estate markets, and is usually trying to push their own market - as in "yes, real estate is dropping all over the country, but all real estate is local and now is a good time to buy here"

Quote: That's why I prefer using year-to-date data instead of data for the given month. That this counts January sales over and over again is precisely the point.

I agree that year-to-date is better, but using it invalidates the assertion that a town is displaying strength by virtue of appearing on multiple versions of the map. In the comments for last month's map you said:

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...

The point is, the results are "remarkably constant" in large part because you are reusing the same data. Using more complete data is good, I don't think people are taking issue with that, I think that the issue is that the resulting similarities between maps are incorrectly being attributed to neighborhood immunity.

I'm beginning to wonder whether this is a blog, or an online contest to see how quickly we can turn bearish news into a bullish headline. All these bidding wars, immune markets, and "outperforming" results represent the kind of spin that gave MAR and NAR the credibility that they enjoy today.

Boston isn't out front in declines, but it's certainly in the forward pack, dropping more than 13% from the peak. So if a reader bought a house in '05 and put 10% down, their down payment has gone up in flames, and they are now underwater on their mortgage. If it comforts them to think of Miami buyers being worse off, so be it.

I do have to point out this:

This increases the significance of any trend, because it limits the influence of each sale. That's why I prefer using year-to-date data instead of data for the given month. That this counts January sales over and over again is precisely the point.

No, Binyamin, your use of data is obscuring trends. Mortgage rates are shooting up, inflation is skyrocketing, the economy is tanking, and you're stlll looking closely at home sales that closed in January--meaning, sales negotiated in October/November/December. It's old news.

Also this:
That this counts January sales over and over again is precisely the point.

Um, in a word, no. In your view, you're gathering up a larger number of sales--data points--to make a better comparison. Let's say that's true. But if YTD figures have any value, it's only in comparisons year over year, because that's the only way you're comparing two different data sets. It tells you nothing to continually compare YTD comparisons to themselves--as you do every month with your maps--because you're comparing the same data to itself. It creates completely false consistency. And it tells you nothing, other than that 2 still equals 2. I am still amazed you can't understand that.

In the months ahead, credit problems will continue to climb the income chain, affecting more and more prime borrowers. Business investment will continue to decrease, affecting Massachusetts' largely business-to-business economy. The foreclosure moratorium will expire for recent defaulters. And tony towns will see increasing numbers of distressed sales. Anybody who buys now on the strength of upbeat spin in the Globe is going to sound very angry on the phone a year from now.

In fairness Marcus, though the globe does spin (I love that "Real Estate" is now "Homes) its much better than most, and though I on occasion disagree with Binyamin I think he's trying to be fair.

No doubt YTD comparisons in real estate are often misleading due to the annual cycle - comparing to a similar point on the cycle YOY gives a much more accurate picture.

Does case shiller break out Mass stats by town? That would be very interesting, to see say Arlington compared YOY by case shiller stats.

And by the way, Kudos to Binyamin for trying generally to bring data in, even if we sometimes pick it apart. Actual data really moves the conversation forward in a good way. And has got to be a pain for him to aggregate even with globe resources - I'm certainly not putting any effort into certain graphs I know would be interesting, as the labor involved doesn't strike me as worth it.

I'm a little confused by the misunderstanding surrounding YTD totals. It is one figure of merit among many (e.g., 3-, 6-, or 12-month moving average) aimed at smoothing this type of data. The influence of an individual month diminishes as the number of observed months increases, in contrast to implications posted herein. It is not surprising that some towns should weather the storm better than others, and the YTD median is a reasonable approach to identify such a trend.

In the spirit of this type of article, it would be helpful if alternative metrics were proposed along with critique. That said, I would suggest that median data computed over a 12-month moving window be presented along with the YTD data. The author may also want to consider the rms value to measure the spread of the data. Smaller rms (i.e. clustered data) may indicate that only higher value homes are being sold, whereas larger rms (large data spread) may indicate that values are increasing across the board.

-Mike

mike, I think the critique of YTD data has been made pretty clear. You can compare one YTD set to another. Binyamin's monthly map postings have been comparing the same YTD set to itself.

marc,
the chart i saw compared ytd08 with ytd07, which is comparing ytd data from one year to another. it's not clear that january has been "counted" more than once.

Over the course of the next five years when gas prices head north of $7.00 or $8.00 per gallon, places like Boston are going to do very well. There is only a small handful of cities in this country where you can completely give up your vehicle and use efficient mass transit.

Boston, New York City, Philadelphia, Washington DC, Chicago, and San Francisco. That's it. Sure, they have busses in Detroit and light rail in Dallas, but the six cities I mentioned are the ones where you can truly do without a vehicle over the long-term.

As a result, owning real estate in these cities next to a subway is going to get really attractive when gas is $10.00 per gallon.

Over the course of the next five years when gas prices head north of $7.00 or $8.00 per gallon, places like Boston are going to do very well

Do well compared to say, Phoenix? A reasonable argument. Do well compared to prices today? Not so much. The more people have to pay for gas, heat, rice, consumer products, food, and everything else, they less they have left over for mortgage payments.

Incidentally, it would be interesting if Boston took mass transit seriously as a competitive advantage. A friend took an hour and a half to get to Cambridge from Logan last week on the Silver and Red Lines. Unexplained waits. Out of service. Repairs. "We're sorry for any inconvenience."

the chart i saw compared ytd08 with ytd07, which is comparing ytd data from one year to another. it's not clear that january has been "counted" more than once.

Mike, please click through all of Binyamin's posts and comments on these map posts. He makes a big point of the suburbs that appear on the maps multiple times.

Marcus's point about Boston taking mass transit seriously is well taken. I lived the carless life in Cambridge for six years, but ultimately caved in and bought a Civic a couple of years ago. The main reason I did so was that owning a relatively fuel-efficient vehicle ended up not costing much more than the combined cost of all the other forms of transportation I was using to get to and from work, to visit family in upstate NY, and to run errands like grocery shopping or other errands where walking isn't entirely practical (carrying heavy things, walking long distances in bad weather, etc). Furthermore, my commuting time dropped from 65 minutes to 25-35 minutes each way. In the last few months that I was commuting by train, service was deteriorating noticeably, which also hastened my decision to buy a car.

There were a lot of great things about the carless life, but Boston is a city where living without wheels requires a lot of planning and committment, particularly if you aren't doing a traditional suburb-to-city commute from home to work. As a reverse commuter, my transportation options were limited, and as noted, not particularly fast; the distance to and from the stations was long, which was not ideal during Boston's extended periods of inclement weather, and the cost of a commuter rail pass is not trivial. Grocery stores are fairly spread out and there are few convenience stores that sell things like fresh produce, so again, taking care of the basics requires lots of planning if you do it on foot, or it requires a friend with a car or a ZipCar membership.

I like my car, but I would love to see greater Boston's transportation system evolve to a point where it's less necessary.

Over the course of the next five years when gas prices head north of $7.00 or $8.00 per gallon, places like Boston are going to do very well.

On the surface, makes sense. Problem is, all the people who bought homes well outside the city during the boom (because that was the only place they could afford), and who will be looking to move closer, will have no buyers. So the bulk of the demand close to the city will have to come from new home buyers that do not have a property to unload, which isn't a very high percentage off people seeing that home ownership rates in this country topped out near 70% recently.

And as mentioned earlier, this is just one factor. With the credit markets seizing up more and more, it will get tougher for people to qualify for loans. High fuel and food prices means less money to cover a mortgage. Shaky job market means people less likely to make new home purchases. These are all bearish for real estate.

Additionally, one can't practically go without a car if one has a small child. I would not want to be entirely dependent on the T even if I had no commute.

I suspect when gas prices hit $8, taking on hundreds of the thousands of dollars in debt to purchase real estate will be far from the minds of many individuals. Basic financial survival will be the priority.

Whoa. I think people are getting pretty far off course here in terms of projecting commodities prices over the course of the next decade or so. Even given the superior transportation capabilities of Boston, Philly, NYC, Chicago, etc - I think focusing on just one impact (the cost of transportation) obscures a slew of other related issues.

If, in fact, gas prices rise by 100%+ in the near future, then doesn't that mean that related commodities like home heating oil, electricity, gas, what have you, also undergo a corresponding rise? And if they also rise, then doesn't that then undermine the value of homes in the north (as the cost to heat them goes from high to extreme)? And if this is the case - wouldn't it be better to buy into a more temperate market (like North Carolina or Virginia - given that higher energy costs also result in higher AC costs in warmer, less temperate states like AZ, TX, NV, etc).

Plus, consider the studies that have come out repeatedly stating the Massechusetts' infrastructure is terribly outdated and requires tens of billions of dollars in improvements, repairs, and upgrades. Is that investment going to take place during this time of economic woe? Who knows? So it's easy to forsee a time when Mass loses its edge in transportation.

Now I'm not saying buying in a temperate region is the answer. And I'm not completely dismissing the theory that cities with good public transport makes sense. I'm simply saying that when you start assuming things like the wild rise of commodities prices, it's not like you can draw a simple cause/effect diagram for the results. I just think people might be getting a LITTLE over their heads here in terms of oversimplification. Just my op.

I commute between Boston and Atlanta. I own a home in the South End and a home in Decatur (a community 5 miles east of downtown Atlanta). I bought a home a couple of blocks away from MARTA about 8 years ago when no one would go near a MARTA station. Now this intown neighborhood is trendy and people are trampling over each other to be next to transport. My house value increased by 6% in Q1 this year alone.
I'm not giving up either of these locations. They are both great! Near services, parks, transport....I don't see many For Sale signs up and I've not heard of a single foreclosure in either location. And the neighborhood associations in both communities are strong and active. There are many aspects of real estate that are definitely local.