Lowballing 2008

This is a helpful post Rona. Low-ballers are a small segment of the market who look for too-good-to-be-true deals. Every once in a while they find one at their price. You just hope the folks they are low-balling aren't an unrepresented elderly couple, or someone under financial pressure. These are the folks who are likely candidates for being taken advantage of. One low-ball client a few years back had the refreshing candor to describe himself as a "bottom-feeder". I appreciated his honesty. He didn't reach an agreement on the house in question. I expect he's out there looking for others.

Town tax assessor databases are also available online, and are a great, easy-to-use resource. You may need to hoof it in person to see what permits were pulled for a particular property, but those can tell you if you're dealing with, say, an unpermitted flip or an illegal two-family.

I have to remark on Jim's tender concern for sellers who may fall "victim" to a lowballer. You would almost imagine we're not in a global real estate and credit crisis caused by buyers who fell "victim" to sellers and lenders.

"Low-balling is when a buyer makes an offer well below what the property is worth."

Well, correct me if I'm wrong, but isn't the "worth" of a house defined as what someone is willing to pay for it? A house that sits on the market for 200 days is there for a reason. And when the other houses in the neighborhood aren't selling either, the "worth" of that property is even more suspect.

As a prospecitve buyer, I have to consider not just what the house is worth to me, but what it might be worth to a future buyer, when I need to sell. "Worth" is certainly in the eye of the beholder. Consider how many of those selling prices you listed above would have been laughed off as "low-ball" offers in 2004.

I'm torn between two properties myself right now and thinking of making an offer this week or next. I'm going to be paying a lot of attention to this blog.

For anyone who's interested, the properties we're thinking about have been on the market 104 days and 133 days respectively. Per Zillow the asking price for both properties is below its "Zestimate." The asking price for both is below each towns' assessments. The asking prices for both are below neighborhood comps for the last 6-12 months (although one place doesn't have much in the way of comps to go by).

So this speaks to Kelly's point. The properties by all logic should be competively priced (the last reductions are anywhere from two weeks to ten weeks old) based upon all the usual points. They are sound properties although they need some work finished and some repairs.

But NO ONE is buying them. So I am left wondering if I'm just stupid or missing something or...

Given this, why oh why in this market would I offer asking price? Neither seller is underwater and have flexibility.

My guess is that I should at least start at 10% below listing. Since the properties seem to be a good deal 15% below would probably be extremely insulting. If the inspector finds something, then we can always re-negotiate. I want to hit the sellers' floor since I can use all the help I can get as a first-time buyer in having some extra funds to do the fixing up needed at either of these two places.

Many markets DO IN-FACT have a % based list price to sales price ratio. The number within that rage can be anything. Offer a price at the highest end of the range if you like the property. If you are out kicking tires, then throw the kitchen sink at them. I'm an appraiser and have been noticing homes that are selling, which are priced right, within days. Banks will also not GIVE foreclosed homes away, so a reasonable offer should be made to them too! I have seen low ball offers that are not considered, and then that property is selling at what was within the list price to sale price range by people that would have initially offered a price within that range and lose out on that property. In this market (most), you must remember that time is a negative factor which will increase the price to sales price spread. You can prove this by the days on the market. However, the word is out that THIS IS BARGAIN TIME and there are many savvy buyers that will not quibble about $5K - $10K off listing price or -5% to -15% off listing price due to the long term gains that will be had! If you like it then buy it, but I would wait until after Labor Day. The homes listed then typically are the best deals.

From what I understand the inventory is down compared to last year. I don't see this reflected in the article. If this is true, the drop in the number of homes for sale could explain why the sales have dropped in almost all towns that have experienced a price increase. Even if the demand remained the same as last year, a drop in inventory could cause an increase in prices. This being true it could definately indicated the worst is over. Knowing changes in the number of homes for sale from one year to the next is too important a fact to leave out.

Kelly,

Excellent points. Rona how do you determine "market value" in such a rapidly declining market? Shouldn't one consider that the home they purchase today will be worth less next month?

A.B-G
Please hit the link from US News and World Report! You are working with bad information and you are not informed enough to make an offer on anything.
Fair market value is a real thing. It is calculated by looking at what buyers are paying for homes like the ones you are considering. Either hire someone to help you, or look in the public record for nearby sales and study them.
This is the biggest investment of your life and you are relying on data that is about 25% wrong in either direction!

General comments:
Market Analyses include looking at the overall market trend in a specific town or area of town. Comparable properties need to be recent sales or adjusted for the local trend.

It is bargain time in some places and in others it is competitive and difficult to buy.

The lowest prices of the year do not come after Labor Day; they come, most years, between Thanksgiving and Super Bowl Sunday.

A.B-G.,

Tread carefully. First of all assessments are based off of 2006 comps and while 2006 might not have been the peak of the bubble, it's pretty close. I won't even address "zestimate", you know better. Asking price is irrelevant, take for example the very town Rona uses in her example, Natick . 20 Nern st unit 20, asking price 799,900, sold this month for 575,000 or almost 30% off asking. Mortgage rates are at a nine month high putting even more pressure on sellers to lower prices. What's the rush? prices have been falling month after month, no one, not even Realtors predict a quick turn around. Find me a an example of when a housing market crashed and in a few months time bounce back to pre-bubble levels..doesn't happen...

If a house is listed at $369k in a solid town with good schools... How low would you go if your a first time homebuyer who is renting and has total flexibility.... The owner bought in 2000 for $255k.... Could I throw an offer of $315k -320k with no contingencies and be able to close immediately... How much might that be worth since I dont have to sell a property...

Any advice --a checklist perhaps-- for due diligence on pending neighborhood or municipal changes potentially affecting a property's worth?

My relatives in Maplewood, NJ bought a home two years before a direct commuter train to Manhattan was to begin service (and knowing such was the case), after which the property more than doubled in value.

In my Jamaica Plain neighborhood, on the other hand, friends of mine purchased a home next to a vacant parcel, only to see a multi-unit condo complex built less than two years later within feet of their home (totally obstructing sun and any view on one side, increasing street traffic and noise, etc.). Apparently, the development was in the works when they bought, nieghbors had heard of it, but Real Estate agents involved never mentioned it to the buyers.

Is there any good way to check for these kinds of things?

If I go strictly by comps (yes, I look at Zillow but recognize it is not the Bible of home values because I've seen it severely over-value things in the past) the properties are both VERY well priced to what's been selling in very close proximity for the last 6 months. As in, I can't afford one of the neighborhoods unless I buy this particular property--otherwise, I'm priced out.

However, both properties need some fixing up. Nothing too major, but in general some older heating systems (still working), older roof (just fine though), but bathrooms and kitchen need updating and the nicer neighborhood we're eyeing up has a pool--pools are almost always a liability for most buyers. The pool needs some repairs although we're getting more specifics from the listing agent.

Looking strictly at recent sales and current sales in the neighborhoods doesn't really help me in my particular case (although yes, it helps in most) because I'd be a fool to offer asking price. If comps were any indicator I should be offering above asking, but that isn't going to happen in this market. So I'm left wondering if I've found a great deal with some work involved or if I'm just stupid and missing something. I'm hoping a run through with a handy family member and an inspection contingency will tease any issues out--in which case, if major things show up, I can drop my offering price even more.

Hard Rain, you ask what's the rush. Our lease is up August 31.

My husband and I is that we've been renting for 5 years, most of that in Allston. We're tired of paying $1600-1850 for a deteriorating property with an slimy, absentee landlord in a noisy student-run neighborhood with rents rising like there's no tomorrow. Sure, we can rent elsewhere, but its not much cheaper or it is often much more expensive. We don't own a car, don't want to buy one either with fuel prices, so the burbs is out of the question. We want to be able to be masters of our own destinies. I am tired of moving every year or two. I want to put some roots down for 5-10 years at least. We're also tired of being taxed to death because we have good stable incomes but no real estate deductions or children, etc. We want to start a family next year.

This is a place to live for us primarily, and secondarily an investment. I realize a lot of people on the blog still see it as a thing with a monetary value attached--important, but if you are planning to stay a long time and the timing is right, why not buy? I think the reasons above make it an excellent time for us personally. We may lose a little in the first year or two, but if we can make the payments and we're there for the long haul--then what's the problem?

Yes, there is a way to check. Its called due diligence. But there is no easy way to check.

Before I buy in an area, I read ALL information about that area back for several years. And make sure to read the local paper, talk to various people in the area, classic research really. The worry, in Rumsfelds famously misunderstood words, is the unknown unknowns.

As to what is low balling? Most I've dealt with seem to define it by asking price. I certainly "lowball" frequently - I'm looking to make money in real estate, and that means buying below what I think I can sell for. Buying at or above the "value" makes no sense. And of course, I'll err in my direction.

Better than lowballing is being aware of arbitrage opportunities or undervalued markets. When I started buying in the South End 10 years ago, no one had ever heard of it - it made no sense that some place nice and close to back bay traded at such a discount. Needless to say that's gone - I'd say its overpriced now - but other opportunities come up. As soon as the market hits bottom there is an area I'm very interested in. (no, I'm not going to divulge/talk it up until I've invested)

Kelly,

"Well, correct me if I'm wrong, but isn't the "worth" of a house defined as what someone is willing to pay for it? "

I would say a house is worth what it eventually sells for! Buyers can make all sorts of offers but that does not determine worth. 1-2 months sales comps, condition and the current market determine worth. Also the offered amount must be in line with the lender's appraisal.
What buyers are willing to pay is one of many factors.

A.B-G,

I'll let Suze explain it....

"We're also tired of being taxed to death because we have good stable incomes but no real estate deductions "

"The Most Popular Stupid Tax Strategy

I know this may sound like heresy, but the mortgage interest deduction is the most overrated tax strategy in existence. I constantly hear happy homeowners boasting about how much money they “saved” with their mortgage interest deduction. Folks, you are really not saving a dime.

If you are in the 28 percent tax bracket each dollar you pay in interest is only going to "save" you 28 cents. So let's do the math together: that means you are still spending 72 cents to save 28 cents. Please explain to me what is so great about that. "

Love this part,must be an old article!

"But if you can bring some logic to this you would realize you're not building up any equity because of your payments. You may be building up equity yes, but that is because real estate prices are going up. The question has to be asked, what happens if they ever start to go down or just tread water for a while?"

yeah, the mortgage interest deduction isn't a tax strategy. But I gave up trying to get people to understand that years ago.

Amazing how many real estate agents have told me that over the years...

All the mortgage interest deduction does is reduce the effective rate - it's a discount on purchase effectively.

There is an actual real estate ownership tax strategy - the imputed income/cost, and the capital gains exemption, but whether or not they apply is very situation specific.

Granted mortgage payments are a form of forced savings, and for many people who lack the discipline to save money on their own that's a good thing. I'd say this applies to 98% of the population, and is one of the best justifications for real estate ownership for the average person.

A.B.G.

Do what is right for you and your family. Don't listen to a bunch of nobodys on a blog, either way. If you don't treat your home as an investment first and make plenty of enough money to make the mortgage payments, than you'll be alright in the end.

Teabin

We may lose a little in the first year or two, but if we can make the payments and we're there for the long haul--then what's the problem?

No problem--as long as you have a written warrantee signed by God Himself guaranteeing that you will not lose your job, be transferred, get sick or have any major unexpected household emergencies over the next five years. When you buy in a declining market, you watch your equity disappear month after month until you join the ranks of millions of Americans who are now underwater on their mortgages. When this happens, you cannot refinance or HELOC to cover an unexpected major repair, keep you afloat after a layoff, or pay big medical bills. Nor can you sell the house to reduce your expenses, since you will owe more than the house is worth.

This is precisely the thought process buyers used to go through for most of the twentieth century, until common sense went out the window.

Charles has the point that makes the most sense.

Regardless you are spending money, a lot of money to buy the house, but you have to spend the money to live SOMEWHERE. So, if I can spend the same amount of money or slightly more and I get a) more space, b) a much nicer neighborhood, and c) can pick the color of my walls--why is that a bad idea?

"If you are in the 28 percent tax bracket each dollar you pay in interest is only going to "save" you 28 cents. So let's do the math together: that means you are still spending 72 cents to save 28 cents. Please explain to me what is so great about that."

Well, if you're in my situation now I'm spending a dollar or 1,650 a month and getting nada back and no benefit and no equity and I'm renting a small 2 bedroom hole in Allston--if I bought a place like this w/ P&I + taxes + condo fees I'd pay less than the rent! I already pay insurance for my personal belongings.

If you're buying a property that because of its shape is priced $150K-$200K less than its next door neighbors, I think that's a pretty good bet for a good place to settle provided you can do the work needed.

I wasn't living in Boston, or frankly, old enough to be paying attention during the last real estate bust (early nineties, right?) but I recall that when things crashed they started recovering about 5 years after the bubble peak. Now, maybe this bubble is different. BUT, I think its highly unlikely that if I buy a place today I will be worth less than what I pay today in 2018 or 2022. Even if I sell AT THE SAME price, I am still going to be better off, especially if I make extra payments into my mortgage and pay off the principal faster.

So, if anyone has a good reason why I should continue to pay, frankly, a lot of money each month and have to yell at my landlord to cut the grass, I dunno, once every summer and wait 3 months for repairs---I'd really love to hear an intelligent argument.

I'm not sure you read my point correctly A.B.G? Forced savings? As I said, a good reason, but I'm certainly NOT telling anyone to buy now - I think that's a bit crazy.

8 years after peak till they started recovering last time I'd say - 1988-1996 or so. And that's nominal, not real. Probably 10-11 years to real recovery.

Which is to say, if you sell in 2018 for the same price today (nominal price), you've actually lost a fair bit of money in the process - you have to discount that sale price for the decline in the value of money (inflation) in the same time period (real price)

A.B.-G, after reading your posts, I'm with Rona. I'd suggest you do a lot more research before you buy a house.

Do you itemize your deductions? Can you? Are you sure that itemizing deductions would lead to a bigger savings than your personal exemption? Have you ever run the numbers? Does what I'm saying ring a bell?

Well, if you're in my situation now I'm spending a dollar or 1,650 a month and getting nada back and no benefit and no equity

You don't get equity out of your interest payments. You do realize that?

I already pay insurance for my personal belongings.

OMG, you can't even compare house insurance to the trivial costs of renters' insurance!

recall that when things crashed they started recovering about 5 years after the bubble peak

No. Over 8 years. And that was after a much, much smaller bubble.

BUT, I think its highly unlikely that if I buy a place today I will be worth less than what I pay today in 2018 or 2022.

Given the size of the run-up, this is unknown. It is also unknown whether you might need to sell or refinance your home before then.

Before you jump into a purchase, you need a lot more information. And some quality time with Excel.

My husband works for the Government and his job is in no danger whatsoever--he is the staff for his area. He is an IT professional and one that when he's in play, gets 2-3 recruiters calling him a day to offer him interviews. And he works in the IT capital of the East Coast. I am a college admin at a university that has been around longer than the government at one of its schools which is the wealthiest of the bunch and my job is in no danger whatsoever.

No job offers 100% guarantee against layoffs--but with our workplaces, we're working in as stable industries as pretty much exist. And you know what--if you don't want to transfer--you don't! You can find another job with the notice you have. I've seen a lot of sellers my age who accepted a transfer promotion after buying at the height of the market and they're now taking six figure losses because of their homes---I don't think that was such a good tradeoff.

And we love Boston and want to stay.

And, we have whole life insurance (insured 7x each what we make), disability insurance and we save for our retirement already--in our late 20s. I think we're prepared pretty well for life's pitfalls and set-backs, Marcus--more than most others our age. Our parents have made their arrangements and are in good health besides.

If we all waited around for guarantees, no one would ever own a home. You're always taking a risk. What if you rent your entire life and don't save enough for retirement because you're constantly paying higher rental prices? What about that risk?

Isn't this thread supposed to be about lowballing, besides? My buyer agent thinks I should come in a good $60,000 under the asking price for the desirable neighborhood which I think sounds good looking at recent sales. If they are insulted, oh well--there's two other properties we like, so not worried here.

Well, it sounds like you're better prepared than most. You wouldn't want to cut into your retirement savings for a short-term job loss, though. I know people who were laid off from government jobs and others from Harvard; some had to dig into their 401(k)s, never a good move.

What if you rent your entire life and don't save enough for retirement because you're constantly paying higher rental prices? What about that risk?

It has been covered in study after study, and reported here, too, that in cities like Boston renting leaves you more money to invest for retirement. Not less. Those are the numbers.

If they are insulted, oh well--there's two other properties we like, so not worried here.

I never understand the spin that sellers will be "insulted" by an offer. Personally, I'm often insulted by their asking prices. I'm not going to give my down payment away.

"if I bought a place like this w/ P&I + taxes + condo fees I'd pay less than the rent! "

Not likely, let's take a middle of the road two bedroom in Allston:

15 NORTH BEACON ST #314

Price : 325k (last sold for 337,450 in 2005 BTW) = 2000.00 a month at 6.25

Hoa: 529.00

Taxes: 2100/12 = 175

Total monthly payment based on a 30yr fixed not including PMI = 2,704.00

It strikes me that you have already made your decision and are trying to rationalize it to yourself or perhaps you husband, best wishes. BTW do you have any facts to back your claim of " rents rising like there's no tomorrow"....

I think most people place too much importance on real estate market speculation. Trying to figure out what the property will be worth at some point in the future is pointless. If you see a property you like and you get it for the price you are willing to pay then you've done well! Real estate has historically almost always appreciated in value. The market will always have ups and downs and as long as you don't use the equity like a credit card you'll always come out on top!

What I object to from some of the regular commenters on this blog I read almost every day is the assertion that NO ONE should ever buy right now or there can never be a right price or situation or home to buy right now.

Just as each market, each home, and each situation is different it is really easy/wrong to over-generalize and make advice 100% applicable to every person. I’ve illustrated in past posts why---it is not merely a dollars and cents issue but also a quality of life and life timing issue. Again, I think 90% of the people on this board see a house purchase purely an investment and not as a place to live. But warning bells goes off in my head when I hear no one should buy, just as warning bells went off in my head in 2005 and I was being told that “everyone should buy.” When I hear comments like that people just lose all credibility for me.

There are exceptions even in a falling market and I believe I am one of them having done the research I’ve been doing for the past year or so.

I think I’m leaning towards one property (a fixer-upper in a nice locale with MBTA rail and good schools) and the numbers would look something like this—to use Rona’s style:

$394,9…$364,9…?...134 days
Condition: Home needs exterior paint, a pool repaired or ripped out, and a shed repaired or torn down. Rest is purely cosmetics.

My agent and I think an initial offer might be $300K even. Maybe slightly less depending on our second visit.

Here’s a few sold comps within .25 miles of this property within the past 6 months. The condition is evident from the pics taken for the listing.

$499…$399…$385…250 days
condition: well kept w/ older kitchen
$449…$449…$449,5…17 days
condition: updated and gorgeous
$499…$499…under agreement…5 days
condition: also well kept, and fairly up-to-date
$669…$629…$595…155 days
condition: very well kept, newer interiors

A.B.-G.,
People have actually given you some great advice (that you solicited). You are considering purchasing a home, but you are also purchasing a highly levered asset. In fact, 20% down is equivalent to a 5:1 leverage ratio - this is more leverage than vast majority of equity hedge funds employ (average is ~1.1 - 1.5).

“I recall that when things crashed they started recovering about 5 years after the bubble peak.. . .I think its highly unlikely that if I buy a place today I will be worth less than what I pay. . .”
Leverage is your friend when markets are increasing because you get the entire gain. Leverage is your worst enemy in declining markets. If the unit you purchase today loses 5% value one year from now, you would have lost 40% of your investment in real terms (assuming 3% inflation). It would take 4% increase every year thereafter to the 10th year get back even.

"Looking strictly at recent sales and current sales in the neighborhoods doesn't really help me . . . because I'd be a fool to offer asking price."

Why would you be a fool? Recent sales are perfect ways to value homes (in an imperfect, illiquid, opaque market like real estate). If your comps indicate a higher price than the listing price, then you are clearly missing something given that the properties have been on the market as long as they have. I am usually skeptical when a real estate agent dictates that you should retain an agent, but in this case you don't know what you don't know.

"no real estate deductions or children"
If this is true, in the 28% tax bracket, you will save ~$1700 in taxes on a 6.25% 30y mortgage with a $1650 payment and ~$2282 for the same mortgage with a $1850 payment. The mortgage interest deduction is only relevant by the amount it increases your deductions ABOVE the standard deduction.
An $1850 payment is a $300,000 mortgage. Can you find a 2 bedroom in the city for that? You also mentioned that it has a pool. A pool in the city? I find it highly unlikely that you can find a pool in the city – or anywhere near the city – for $375,000. Unless of course, you are stretching to make an argument or worse, you don’t know what you don’t know.
Lastly, you should consider the NYTimes Rent vs Buy Calculator here:
www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?_r=2&oref=slogin&oref=slogin#.
It replicates what took me about a month, grad school, and 10 years of experience to build in Excel. Be reasonable in your assumptions. Generally, the average growth in most markets is 5-7% per year, but there are very low and very high numbers that make real estate investing in the northeast tricky. Also factor in the likelihood that prices will continue to decline for a few years.
Good Luck.

Hard Rain,

To give you an example of rising rents, my apartment which is a very poorly laid out unit in the 3rd floor of a victorian, 2 beds (really 1 bed w/ office though) and 1 bath is going to be going for $1800 a month starting this September WITHOUT heat and hot water which is also going up this upcoming winter. The systems are older and the windows are older , and of course, the landlord isn't going to change those to be more energy efficient.

I currently pay $1650 which is considered to be a "good" rent. When I arrived in Allston in 2004, I had a better unit for $1450 a month with heat and hot water included.

$529 a month for HOA is frankly, ridiculous. I see plenty of nice condos in Boston with HOA fees around or less than $200 a month--water, sewer, and master insurance.

Your $529 HOA fees likely also cover heat and hot water. Or they ought to, at that price.

However, I also mentioned I do not want to be in Allston. Only so many calls to the cops and beer cans and cups on the lawn you can deal with for 4+ years. The sale prices are higher in Allston because the rents here are good and easy to fill.

If I plug $1800 a month (the amount I would have to pay) into a basic mortgage calculator, assuming a 30 year loan at 6.25% and no downpayment I show that translates into nearly $300K for just P&I. Now of course, if I assume $2K annually in taxes and $200 HOA payments monthly that means I have $1400 to spend a month on PMI. That translates into: $225K. And you can find nice 2 BR condos in the city for that amount--nicer in condition than what I've been living in.

For $250K and below you can live in comparable or nicer places in the following neighborhoods: Eastie, Southie, Jamaica Plain, Savin Hill, Neponset, Brighton, and Allston. If you are already paying utilities not much will change--maybe its even better if the place has updated systems and windows. Building insurance is in HOA dues and if you are a smart renter, you've insured your personal belongings. The only wild card is repairs--and much of that depends on a good inspection and buying the right unit.

But I'm not considering condos--only single and multi-families. So we're definitely going to spend more--a comparable rent for the neighborhood we're eyeing up is $2500-$3000 monthly.

I just wanted to throw my 2 pennies in with respect to "low ball" offers, what constitutes a lowball offer and whether or not you should try to make one... what a lot of buyers don't seem to understand is that an asking price in a lot of cases can be fairly arbitrary. Sure, a good real estate agent will use a slew of comps, try to come up with the rosiest number that works for the buyer, and use that as the selling point.

But let's look deeper at how the offer price is arrived at. You're a seller's agent. You know that a homeowner is looking to sell and you want them as a client. It's in your best interest to go to the seller's house, give them the highest potential selling price to make them feel good about their house and happy about the potential money they could have coming in, secure their business, and then spend the next several months talking the seller into lowering their price to a more realistic level. I'm not saying all seller's agents do this - but having worked with a LOT of them I can say that many do.

So in a lot of cases, the "asking price" is just what the realtor considers the "best case scenario based on the comps". In a market like this comps are almost meaningless. Sure, you can look at what's sold over the past couple of months - but the market has deteriorated so quickly and there are so many more foreclosures and distressed properties on the market that it really is a buyer's market. Why not take a stab at throwing out an offer 10-15% below asking? What's the worst case scenario? In this market the worst case is usually that the seller will counter much, much higher. They usually won't completely walk away insulted if they really want to sell. If they counter higher - hey, at least you got them to come down a little. If they slam the door in your face - go find another property. I've had plenty of offers rejected - but there are plenty of fish in the sea. Don't get your heart set on any property until after the close or else you are just setting yourself up to get burned.

My wife and I have bought and sold plenty of houses. We've never paid asking for anything. That's just the start of negotiations for us. The haggling over the price of the house is part of the fun. Some people aren't comfortable with it or they get stressed out by the giant dollar figures involved. Why? It's only money. The house we live in now was really well-priced for the town and neighborhood it's in - but it was still a little more than we could afford. It was priced in the very high 400s. We came in with an offer in the mid-400s and they countered MUCH closer to our number than to their asking price. We talked it out and struck a deal. They moved on to greener pastures and we got a house we absolutely love.

There's absolutely nothing wrong with asking. You don't want to completely insult someone and come in with an offer that you know they won't take - but within reason - if you know something's been on the market for awhile - why not give it a shot? Who knows why they are selling - maybe they really want to get out. If they don't like your offer, they aren't under any obligation to take it, but if you can get a good deal like we did with our house, you'll always look back on the experience fondly instead of sitting around wondering what could have been.

A.B-G,

It seems like there are two issues here:
1. Lowballing. My take is that if you don't care if they say 'no', then you can offer whatever you want. The only risk is, if you are working with an agent, you could end up annoying your agent if they feel you are wasting their time. If you want the win the house, though, you need to do the research to determine what a reasonable (but still a good) offer is. This is just like Rona and others have said.

2. Whether to buy at all. Many people feel the market hasn't hit bottom, and it's going to be a while before it recovers. Therefore, buying anything isn't a sound investment. My guess is we haven't hit bottom, but I wouldn't be surprised if interest rates go up as prices continue to go down. Payment-wise, it may not matter that much. In any case, you can drive yourself crazy if you try to predict the future.

Better questions may be, "Can you afford to buy?" and "Do you want to?".

Under the "Can you afford to buy?", I'm going to assume you've done the math, and can make the payments. As others have pointed out, no one can predict your job status for the next 10 years. A good rule of thumb, I've heard, is to have 3 months income in savings, in case of sudden job loss. So, you'll want this much in savings, after you buy the house. The other thing that can happen is a job can move. If you are forced to move, and the value of the house has gone down, you have to take the loss instead of riding it out. Otherwise, if you are in a house for long enough, it'll almost always make financial sense. If you think about it, you'll realize that rents always go up, your mortgage payment won't (Your tax break will, however, go down as you pay less into interest and more into principle).

As far as "Do you want to?", this is a question only you can answer. Home ownership has advantages and disadvantages, and I'm sure you've thought about them.

Thanks WS.
The place I am interested in buying has a pool.
The apartment I live in is a swamp. :-)

I agree, I wouldn't be throwing my thoughts out there because it is interesting to see what people think---but I reserve the right still to disagree respectfully. There are a ton of good reasons to rent now and there can be, for some people--even in this market, a good reason to buy. That's really all I'm arguing. No I am not a realtor and I confess myself frustrated by some of the ever-cheerful predictions that come from NAR. Frankly, I'm just thrilled I didn't buy 2003-2005 like some of my friends did.

The "X" factor with the figures above is condition--difficult to price w/o a lot of estimates. I'm working a bit on that right now, but there's also "Y"--the hassle factor. If the property was in a comparable conditon as the others, then the bid would be much, much easier to price out.

By the way, I did mention in my first post that I was going by comps from the get-go. I guess people got a little over-excited because I mentioned Zillow and jumped on that immediately.

The asking prices for both are below neighborhood comps for the last 6-12 months (although one place doesn't have much in the way of comps to go by).

WS,

Love the calculator--one of the better ones I've seen! Thanks!

According to it, if one pays $1800 a month in rent, and you pay $250K for a home with zero down and 6.25% mortgage and $2,500 in property taxes, you're better off buying after a mere 4 years (assuming rents rise 3% per year and the home appreciates a mere 1% per year).

Speaking for myself, and I think for Marcus, I've never said that buying was an ironclad bad idea in this market. As I try to re-iterate, its about the price. If someone offered me a nice south end 1 bed for 200k, I'd buy it tomorrow. At 500k I'm not interested. I've even put a bid in on some raw land in the last few months, as I believe I've mentioned. I bid it at the right price - sellers didn't even come back to me. Thats fine by me.

The real estate market is not nearly as unpredictable as people like to claim to make themselves feel better. If you are willing to put in the time and the analysis, its actually reasonably predictable. The numbers are not magic, they are derivable, as both I and Marcus keep trying to point out.

I do think anyone asking if they should buy now by definition probably doesn't have the sophistication to buy now, its a bit of synecdoche. I say this not snidely, but to recognize the reality that most buyers of real estate are not that financially sophisticated, and broad advice should be tailored to the broad consumer of it.

As an aside, the quote above "Real estate has historically almost always appreciated in value. The market will always have ups and downs and as long as you don't use the equity like a credit card you'll always come out on top!" is straight from the NAR, no? I didn't realize anyone was still saying this.

ABG,

You don't think they are spewing their venom for their own financial gain? Don't be naive, they have motives other than trying to help you out.

Any person can see that the market is declining, so I guess that means every 30 year old should wait until they're 35 to start their life. They have no more of an idea than you or me on how much and until when prices in Mass will decline. A reasonable guess is another 10 percent and until early 2010, but who really knows. Listening to the media and bloggers on when and where you should buy a house is as stupid as they think you are for buying now.

Again, do what is right for your family. If that is buying now, than do it. If it is not, than continue to rent Just make sure that either way you will still be able to save for retirement and emergencies and easily make your mortgage or rent payments.

Teabin

Charles, why do you keep saying things like, "Speaking for myself, and I think for Marcus" and "as both I and Marcus keep trying to point out." You've said that a couple different times now. I find it very interesting that you two seem so intent on contradicting everyone else here, except for each other. What's the deal?? Mutual interests in this somehow?

Would love to know the answer . . .

This blog entry didn't start out with I or anyone asking "if" we should buy, although it certainly went in that direction. The questions are:

If online resources are flawed (which they are), how to price real estate in a falling market? How does one arrive at a good "lowball" offer versus a ridiculous "lowball" offer. I have two other places I like, but if I go with this place, obviously I'd like it to be successful and come to some accord.

If I offer $300K for a house currently priced as $364,900, that is 17.7% below asking. Some may say that is "lowballing" it but I think its what the property is approximately worth considering its current condition. If the home was in good condition, recent comps indicate a price between $375K-$400K for this neighborhood.

"recognize the reality that most buyers of real estate are not that financially sophisticated"

Funny, someone may want to point out to Einstein that he's used the word "synecdoche" incorrectly in his previous sentence. Word of the day calendars are nice, but you really should understand the definition before throwing big words around like that.

Yeah I have to agree Carol - not did the use of the word seem gratuitous, it doesn't make any sense in that context.

Carol, I thought the exact same thing. Thanks for pointing that out!

synecdoche - part that signifies the whole, think about it. Never had a word of the day calendar, just a decent education.

Why do I say "and Marcus"? Because we seem to have similar points, and I don't want to arrogate his statements as my own.

I'm curious what conceivable financial benefit we are in cahoots for? I can't even begin to dream something up.

Unlike, say, many realtors, who have an obvious interest in encouraging buyers.

And as to whether I have no idea on what the market will do - feel free to go back and look at my previous posts, and compare them to what happened. I've no problems with what I write being checked.

And I don't really care if people waste their money, in truth, but the discussion amuses me. I frankly don't expect most people to listen to me - no one did back in 2005 when I told them the real estate market was going to drop, I'm under no illusion people will start now. And unless you are a friend or relative, I don't really care whether you make or lose money - it's just interesting to watch.

And rather educational.

AB-G,

Be certain that you are putting in the price of the home and the down payment.

Also, zero down loans do not exist in Suffolk county right now. They cannot be insured. Norfolk, Suffolk & Plymouth counties have a max LTV of 95%. Investors are funding non-conforming loans at 8-8.5%.

The bears on this board are loud and few of them actually say do not to buy a house. Most say to be aware of the market into which you are entering because it is still largely guarded / controlled by people that have a vested interest in you buying a house.*

One last thing, when you start looking for a mortgage, try the small savings banks in the area. By and large, they own your mortgage, provide great service and are usually less expensive.

* When the interests of the buyer and the agent for the buyer are not aligned, there exists the possibility for fraud, manipulation, or misrepresentation. Too many real estate agents focus on selling and not on building a business. In my experience, agents that build a business are golden and worth their commissions - and they never want for motivated clients. Unfortunately, the vast majority of agents are utterly worthless and will be marginalized by the new tools providing transparency into the $4 trillion residential housing market.

It's not uncommon, in these discussions, for some of those who prefer to believe that the turnaround is at hand, or that the slump will be shallow, to fall back on personal insinuations of self-interest, or on a shoulder-shrugging, "no one knows." I've seen it repeatedly, elsewhere on this site.

If you think everything will be "fine," then the burden is on you to show why house prices should settle so far above historical norms regarding income to price ratios, as well as price to rent. What is going to make it OK for people to continue spending such a high proportion of their incomes on their house? A new flood of subprime mortgage products? Dirt-cheap gasoline? Falling food prices? Investors beating down the door to offer residential mortgage products at low, low rates? What?

Whether to buy now, and what to bid, are, in fact the same question, as others have pointed out. If you're able to get a house for what it will be worth in three years, then go for it.

Charles - first, I think it's a bit of arrogance saying that people who don't have an in-depth understanding of every minute detail of the functioning of the real estate market have no business buying right now. The fact of the matter is that nobody has any clue what the market will do 5, 10 years from now. Will it resume an upward appreciation in the 8-10% range that had become typical over the past decade? Of course not. But I think a 10-20% total appreciation over the course of the next decade isn't remotely unreasonable - and that's not that bad either

It's also overly simplistic to say that we haven't seen the bottom of the market yet. Who can say when the bottom is? You could get a deal on a property now that wouldn't be there in a year or two. Not to mention the fact that the Fed has shown a strong inclination to hike interest rates in an effort to combat inflation. High interest rates generally result in higher mortgage rates. In the 80s, rates got into the teens. The rates we've seen lately have been historically low. A $400k house that is affordable to a buyer at a 6.5% interest rate may not be affordable if rates were to rise to 8%.

It's also impossible to say how the rental market will change over the next decade or two. Inflation looks to be getting a little out of hand right now. A rental that costs $1500/month now could rise to $2500 in the next decade - or more. Who knows? Meanwhile, a buyer who locks in a $2000 mortgage is still paying that $2000 in a decade.

Bottom line, the same recipe does not work for every buyer. Good for you that you predicted the bursting of the real estate bubble 3 years ago. Tons of people saw this coming. It was a piece of cake to see certain trends getting out of hand. But the common wisdom for the real estate market often mirrors those of other markets: sometimes it's a good idea to do the opposite of what everyone else is doing. When everyone else was snapping up tech stocks in the late 90s, it would probably have been a good idea to put your money elsewhere. When REITs and asset-backed securities became all the rage 5-7 years ago, you were probably better off shorting that stuff. Right now the real estate market is increasingly out of favor and people are pannicking. Is it a good time to jump in with both feet and leverage yourself to the hilt to buy something? No way. But it's also not necessarily the right time to run as fast as you can in the other direction. What works for some won't work for all. You've got to do the math, work the numbers and see what sticks.

We know the market stinks right now. Every article is quick to point that out. But some who are in a position to do so would be best served buying something. Believe me, with mortgage restrictions as tight as they are right now, there is a good chance you won't qualify for a mortgage that could end up coming back to bite you anyway - particularly now that they are starting to do away with all of those ridiculous exotic loan packages of the last several years.

"If you think everything will be "fine," then the burden is on you to show why house prices should settle so far above historical norms regarding income to price ratios, as well as price to rent. What is going to make it OK for people to continue spending such a high proportion of their incomes on their house? A new flood of subprime mortgage products? Dirt-cheap gasoline? Falling food prices? Investors beating down the door to offer residential mortgage products at low, low rates? What?"

Marcus, I think that housing prices in this area will either stabilize or rise slowly over the course of the next couple of decades. The problem comes when people expect returns in the 8-10% annual range. That's just idiotic. The Boston area is somewhat unique to the overall discussion of real estate appreciation because of a couple of reasons:

First, the Greater Boston area, with some exceptions, didn't experience the absolutely rampant appreciation of much of the rest of the country. Yes, there was significant appreciation. Yes, it way outside of the historical norms. But it was not as ridiculous as that seen by a lot of the other areas getting thoroughly crushed by the current subprime blowback. Is that growth sustainable? Of course not. But some growth, in the form of inflationary pressure and other market forces, should be.

Second, a large part of Boston is comprised of filled-in land (see: South End). There is simply nowhere to expand to. That's why it's impossible to get a new park built for the Red Sox, and that's why it was impossible to get a stadium built for the Patriots in Southie. Land is precious here - moreso than in a lot of other areas of the country. To build or to find new areas to expand, you have to move away from the city. That will always keep pricing pressure towards the center of the city. Couple that with rising gas prices and the farther out you go, the less upward pricing pressure you're going to see.

Third, inflationary pressure doesn't just impact food, clothes, transportation - housing can also be driven by those forces. People need a roof over their heads. The falling value of the dollar can result in a higher cost of EVERYTHING - including real estate. Rents could easily go up 50% or more over the course of a decade, whereas if a buyer were to lock in a decent fixed rate on their mortgage, their monthly payment goes up only to the extent that their real estate taxes and insurance premiums do.

I'm not saying that everyone should buy. In fact, this recent bubble burst probably removed a lot of people from the market who had no business buying in the first place. I'm just saying that it's narrow minded to say that NOBODY should buy - or that there is no way that housing prices won't see appreciation in the next decade or so.

One final point - I think a lot of people tend to ask what the housing market will do in the next 5-10 years. If you are buying a house to live in, it should NOT be a short term investment. Unless you are buying a condo you'll grow out of etc or a starter home - you should be asking yourself - what will the market do in 20-30 years? Answer? Absolutely nobody knows.

Oh, and for clarification, I do not work in the real estate business, nor do I have a vested interest of any kind in whether or not people buy real estate. If you are a nervous nellie and want to hold off from buying anything - I completely appreciate that. If you are gung ho about the market now that it's taken a hit - good for you. I'm simply pointing out that there are more forces at work on the market than many here tend to acknowledge, and sometimes the over-simplification of things tends to cloud the bigger picture.

And Marcus - you are my favorite poster on these boards, so this was in no way intended as a dig at you.

Marcus & Everyone Else,
A house next to my parents sold in 1999 for $222,500. Same house sold for $439,000 in November of 2005. Its a 4 bed 2 bath cape in a metrowest suburb. In 6 years it doubled.... Assuming a 4% yearly increase from 1999 prices, today that house would be valued at $316,000.... I think Mid 1999 was the last year before the greater Boston markets big Boom. So if you look at prices in 1999 and then add 4% per year times 9 years you should get a reasonable sense of what the properties should be valued at today. Thats what I have been doing when I look for homes. I would love to buy a place but until I can get a home by my calculations of what the long term worth truly is, I will continue to rent.

To add on another thing...
There is a house that is listed at 369k 3 years ago it would have sold for prolly $420k. If I could get that house today for $315k - $320k I would buy it today because there is a large enough "Margin of Safety".... If prices come down another 15% then the value of the house would be $315,000.... what I paid for it a year or 2 earlier....

I really beleive in looking back and doing a regression and use 3 or 4% annual increase in value (inflation) to find the value today,

Matt, what you're proposing is a heuristic, a rule of thumb, for figuring out the true value for a given house today by assuming its price will return to historical norms. I might quibble a bit on the numbers you use, but I agree that this is a very valuable figure to look at. I've found a lot of people are shocked to learn what their house would be worth today if the bubble had never happened.

ABG,

"For $250K and below you can live in comparable or nicer places in the following neighborhoods: Eastie, Southie, Jamaica Plain, Savin Hill, Neponset, Brighton, and Allston"

My last two cents. There are a grand total of eight 2 bedroom condos listed for 250k or less in Brighton (out of 108) , all in crummy neighborhoods. Square footage ranges from 588 to 800. I sold my home last year and with little trouble rented a three bedroom one bath apt in Newton with WD, DW and new kitchen for 1700.00 Month. Paying 1650.00 for "a hole" (your words, not mine) in Allston indicates a poor grasp of the market. Good luck on your late night T rides home to Savin Hill....

Looking in 02125 Dorchester

I don't need to buy anything now. It's so hard to make an offer in a falling market. I think I will find a good condo and make an offer about 15% below comparable sales (they might not even be available) Just my guess but I think the market needs to fall at least that far to get aligned with area salaries.

just guessing here.

You can buy properties now that are priced well, even taking into account a further drop in the market. Granted, they aren't the majority--but if you find one you like and its a good price-why wait?

Hard Rain, a simple cursory search on MLS-PIN yielded 11 good condo situations in Brighton, all near the T and all under $250K. My example was comparing apples to applies--comparable rental to comparable purchase. So who's stretching now to try and fit their prediction?

You also didn't address any of the other places I mentioned, many of which are developing. There is nothing wrong with Jamaica Plain by and large or Southie. Some parts of Eastie have wonderful views. And frankly, if a OTB Savin Hill home came on the market at a price I could afford...I'd snatch it up in a second. Dorchester's larger than the downtown areas put together and a lot of it is pretty nice.

TO: 1st Timer Currently Renting

Do not under any circumstances give up on the contingencies - particularly in this market.

Second, make the offer irrespective of asking price, but taking into account what the property is worth to you as a user and as an investor. Asking $369K after 8 years and having purchased it for $255K translates to about 5% gain yearly. That is a very reasonable increase over the last 8 years. Depending on the sellers reasons, they may take your bait at $315K or so.

Matt, that makes a lot of sense to me.

Funnily enough, I used to be criticized by all who knew me as the biggest Boston real estate bull. Which I was. And actually, over the long term I still am very bullish about Boston real estate.

But I still have trouble with ignorance and unsophistication as a financial approach. It leads to not making money. Which for the largest investment of most peoples lives, is not really a good idea.

And yes, the crash was obvious in 2005, which is why I sold out and went into oil stocks in 2005 (also obvious). And no I wasn't in tech in 1999 - also obvious it would crash. And I've been short the stock market since last september - its been obvious it would drop. And right now, its obvious real estate will continue to drop.

Don't knock the obvious as a way of making money, look at how many people are resistant to it.

As to whether one can have a nice life, or start ones life, without owning real estate, as someone above said, frankly, my life is pretty nice, and its quality has more to do with relationships with other people then with who holds title to where I live. Granted I'd prefer to own, actually, but I prefer not losing money more.

...and I haven't even mentioned condos in Roslindale or Hyde Park. I just noticed a listing for a newly renovated condo, 2 beds, 1.5 baths in Hyde Park right near the commuter rail stop in Fairmont for $199K on Albion Street. Granted, its not on the main rail, but its a nice neighborhood.

Also, I'm sure you can get a 3 bedroom rental in Newton. Its in Newton which has a slow green line and you need a car to live. So I've never looked. Newton could also be--Auburndale. If you are paying for a car and gas, I don't see that as a bargain. Sorry. And there are plenty of other nice places to live besides Newton, Arlington, Brookline, Back Bay, Beacon Hill, etc. despite what many think.

The point has always been that this is a blog about "lowballing". If you use the leverage you have because it is a falling market, inventory is up, properties are languishing on the market, and the buyer pool is diminished and you can get a great price (taking into consideration how inflated things were in the past few years), now is as good as a time as any for some people to buy. PERIOD. J.P. probably made the best points out of anyone on this blog in terms of mentioning that for some people with the right property, now is a good time.

There is plenty of stuff to look at, some of it short sales and foreclosures, and plenty of time to do it--never rush! And don't get attached--there's so much out there. I've been looking for 9+ months and I still could be looking at 100s of more places. If the money or timing or whatever doesn't line up, you should never buy--regardless of the market. The only other advice I might give for someone interested in buying is to look more at properties where the last purchase was before 2000. Anyone after that has generally been unable to give the correct market value for their home and its basically a waste of time--I bid on a place in March and because of realizing that, have stayed away from properties with a similiar occurance ever since.

"You also didn't address any of the other places I mentioned, many of which are developing. There is nothing wrong with Jamaica Plain by and large or Southie. Some parts of Eastie have wonderful views. And frankly, if a OTB Savin Hill home came on the market at a price I could afford...I'd snatch it up in a second. Dorchester's larger than the downtown areas put together and a lot of it is pretty nice."

A.B-G., I'm in a similar situation I think (first-time prospective buyer), but I think what you've said here sounds like what I thought a few years ago, not now - the bubbly-excitement of rising home prices you're used to talking about in "developing" places like JP, Roslindale, Southie, Eastie has already happened and is now either 1. over / flattened or 2. reversing. (Dorchester? Maybe, depending on where & what happens there next. Is it better than paying $1650 in Allston? Yeah, probably.)

So I'm not buying something unless it's at a value in near-future terms, because the current prices, while relative values to the crazy, bubbled-up recent values you're thinking about, are really still overpriced. Why waste my down payment? I can't drain my resources to buy something decent and then risk something unexpected happening.

AAB-G,

"now is as good as a time as any for some people to buy. PERIOD."

Saying it does not make it so. The people that offered advice that you solicited have covered this ad nauseum and you still have not provided any critical analysis to support your point.

Charles and Marcus (and to some extent Hard Rain) have given you a compelling case to be wary of purchasing based on the facts of the Boston real estate market and the factors that influence real estate in general.

The most salient, clear and concise advice yet was given earlier and to paraphrase: Buy a home today at the price it will be in one or two years.

If you believe that real estate will increase in two years, then current housing prices might be a bargain. If you believe that real estate may decline during that period, "low ball" them because YOU have much more lose than the seller.

I try to remain neutral and provide people with tools to make informed decisions because there are values out there.* In fact, you (mis)used the NYTimes Rent vs Buy calculator to justify your purchase and reject rational valuation methods in a volatile market. Rona is right. Seek a buyers broker now.

* There is a family that is being transferred overseas and must be there by September. They purchased at the absolute high in 2006, paid the most per sq ft ever for their building, made very modest improvements (Brazillian Cherry Floors? C'mon people! They are 1/3 to 1/4 the price of oak or maple!), and are listing their home as if it appreciated at 5% each year. If you are generous with the price of the improvements they are listing at as if the price appreciated at 1% per year. Needless to say, I will be on their doorstep in August with a lowball offer - significantly lower than the first offer I made. Unless someone like AB-G comes along and overpays ;-)

WSJevons,

Also, zero down loans do not exist in Suffolk county right now. They cannot be insured. Norfolk, Suffolk & Plymouth counties have a max LTV of 95%.

Wrong. FHA loans are 3% down and are widely available. Mass Housing loans can still be found at 0% (as of June 1st they're back--I found out a few weeks ago) but you must conform to income caps. You must have good credit. There's also Nehemiah programs and Ameridream programs. Should you purchase with little to nothing down? That's a whole other issue.

One last thing, when you start looking for a mortgage, try the small savings banks in the area. By and large, they own your mortgage, provide great service and are usually less expensive.

We were referred to two brokers from friends who have had positive experiences. We also called up a few local banks and credit unions. The banks had higher rates, some by a quarter of a point higher. I was as surprised as I am sure you are.

WS, I did you use your tool correctly and I did put in the downpayment and the price of the home. I also played out a few scenarios. The worst had me doing better after 6 years. There is one flaw though--it doesn't have any entries for PMI which most first time buyers cannot put 20% down on a home in this area.

PMI on a 350k house is $150/month = $1,800/yr... I looked into the FHA 3% and PMI is required now... Cant get an FHA with a 2nd mortgage to bypass PMI.... Currently with interest rate where they are thats like taking $25,000 off the list price in terms of what one can afford for a monthly payment.

I know. Unfortunately, we're above the the $110 income cap that makes PMI tax deductable--but not like that's a permanent tax deduction anyway. Nor do you get your money back. I've heard you can get piggybacks still, but they are super hard to come by and your credit has to be impeccable.

FHAs, now and during the bubble, have always required PMI.

ABG,

I address my comments to you specifically to indicate I am speaking to you. FHA will not approve a loan for a property with a pool that needs to be ripped out or repaired. Also, do you qualify for a Mass Housing loan (i.e. make less than 94M/couple/year)? DPA programs also have income limits around Mass Housing limits and they have asset limits. If you don't qualify, then I am not wrong.

"FHA loans are 3% down and are widely available"

You still have to meet FHA underwriting requirement and the median minimum credit score has increased. By definition, the loans are available to fewer people. Regardless, I was addressing you - not the market in general and FHA will not accept the property in which you are interested.

"I did you use your tool correctly"

Good. But originally you said you put in the mortgage amount. Which is wrong. And, PMI can be entered in the home insurance part.

Since this has become a dialogue rather than a forum, I am going to move on. Good luck.

Matt & ABG,

FHA does not require PMI. FHA is the mortgage insurance. You pay FHA mortgage insurance until the LTV reaches 78% and for a minimum of 5 years. You cannot submit a new appraisal to satisfy the LTV requirement.

It is CANNOT EVER CANCEL mi if you do not pay an upfront mortgage insurance premium at closing.

Second liens are generally not allowed by FHA.

So not only have real wages not moved up at all since 2000... now the way that people bought homes (80%, 20% piggyback loans) that helped the Bubble double home prices are gone. So the "New Generation" of first time homebuyers who have a lot of student loan debt, whos wages haven't increased all that much are now expected to buy starter homes in the 350k range East of Worcester with the old way of buying homes with traditional finances.....
Thats not gonna happen not at these prices. Generation Y (1978-1996) are entering their Household formation years. They have an average of $20,000 per person in Student Loans... So we start Households with 40k behind the eight ball and forget about getting $70k saved for that $350k house... LAUGHABLE... Also What happens if they want to have Children... Good luck paying down Student Loans, pay the Mortgage and pay 1600/month for child care... Something is gonna give and guess what is gonna have to be of those 3 things... Yeah Housing is heaed lower... Not even mentioning the coming crisis with Heating Oil this Fall and Winter for these 2,000 square feet homes.... Its a terrible time to buy a house if you are in your late 20's and hope to own... wait till it all shakes out maybe by 2010....

ABG -- I remember you posting on some earlier entries, regarding evaluating a fair offer for a condo you were looking at.

Are you looking at SFH's now? Have your target locations changed or are you looking in the same areas?

Hey LL,

Only considering SFH or certain MFHs. We're looking for a minimum of 1500 square feet and a SFH price around $350K. I went to two places yesterday for a second look at each, the one with the pool was immediately ruled out because there was a serious, serious problem we suspect with erosion and/or the foundation. A look at a seriously askew chimney in the attic and two twisting beams in the basement made my husband and I completely reconsider the property. The pool situation is worse than we thought too once we pulled off the entire cover--there is a huge sink hole and more serious erosion issues. Sad...because its in the Columbines area in Milton, but there isn't a lowball low enough I could offer the sellers to want to take this on as a first time home-buyer. As it turns out, FHA does have construction loans-- with grounds issues we were told by our lender are no problem. I doubt that is the case with the building itself and regardless--it isn't something we're going to take on, ever--its too much for us.

So now we're left with one place we're feeling okay but not excited about and I think in this market we should feel more than that especially since more places will come on the market. Maybe we'll bid and see how low the seller is wanting to go and see how we feel then. So the search goes on....

The good thing is that we learned we really love that Milton neighborhood, so we'll keep our eyes peeled.

The condo example really came up as my way of pointing out that opposed to renting an apartment in Allston as I am doing now for $1650 (rising to $1800 in 2 months--a 9% increase) that people facing steeply rising rents MIGHT be better off purchasing, even in this market. It was my way of pointing out that blanket statements about all buyers and all homes for sale in this market just make me a little untrusting--just as I thought the hype about buying a place in 2005 was also unwarranted.

ABG, that house in Milton has been on the market for WAAAAAY longer than 136 days. They've been trying to sell it for at least a year.

Sophia--Interesting. I guess that's what happens when you keep posting and re-posting on MLS--the oldest I had only went back to the beginning of the year, I think. The sellers have a lot more leeway considering when and for how much they bought the place in 1997 and haven't done anything to maintain it. I don't mind fixing the grounds--but there's other issues afoot there.

LL--now that I re-read your post I think you are talking about that condo I was looking at about a month ago--it was 2100 square feet. Yeah--I thought maybe a condo was fine if it was huge--turns out, I really do want the right SFH or a MFH and am sticking to my guns.

ABG- I have a friend who did a rehab (203) loan. I'm not sure if that's possible in the FHA world, but I thought I'd throw that out there.

I would consider that "Any and all offers welcome!" would be a welcoming invitation to lowball. You have nothing to lose. Just make sure your contingencies are there so you can bail if you find dead bodies in the basement or something.

I think everyone agrees that there are situations, even in this market, that justify a purchase.

Some of us think one should analyze that question in order to come up with an accurate answer, though, and that guessing and impulse are poor financial strategies.

In the areas I'm interested in, I review the listings pretty much every day. Funny to see all the listing washing going on. And other stuff - look at 53 Madison Ave in Cambridge. Now that is a hysterical listing. (Btw, anyone who can't see why should be using a good buyers agent)

The real kicker about that house in Milton is they originally listed it at $425K last summer. Talk about delusional...

and come to think of it, any buyers agent in the Cambridge market who can't quickly see why 53 Madison Ave is so funny is well worth avoiding - its a good test for buyers agents.

I'm not looking in that market nor is my agent dealing in that market, but I decided to take a peek myself. Probably if I asked my agent to pull up the MLS-PIN history on the place, I'd see some other things.

This is interesting:
Sale History & Tax Info Sale History
02/06/2008: $335,000
04/25/1986: $145,000

I don't think that hiring a listing agent related to you is the smartest move.

Seems a little crazy to try and flip it for that much a mere 5 months later. Then again, its heartening to know that apparently I could possibly afford parts of Cambridge myself in another year or so. I really want to be on the red line for both of our commutes.

Price Reduced: 06/09/08 -- $649,900 to $615,000
Price Reduced: 06/25/08 -- $615,000 to $598,000

Thanks for the laughs, you guys!

LL - can't tell if you saw what ABG posted, my apologies if so - its much funnier with the Feb number.

But yep, we seem to have the very last flipper in Massachusetts there. 335k in Feb, after sitting for a while and not selling, relisted a few months later with a coat of paint and a few other facade type renovations for over 300k more.

That is one expensive coat of paint.

Who gets into house flipping in early 2008?????!!! I literally laughed when I saw that one pop up.

It is in Cambridge. Albeit just barely. And yes, there is affordability in Cambridge now, and will be more, though a lot of the cheap stuff is near Alewife and Rindge in areas I personally wouldn't buy for investment.

I didn't see ABG's posting when I posted (there's some delay in posting to this blog).

Wow, that makes it even funnier. Too bad I work in a shared office - it's difficult to contain my laughter with people around me ...

Granted, I'd love West Cambridge, but I'm realistic. I don't even think that's going to happen for us at the bottom of the market. That being said, if its on the Red Line north of Dorchester and bigger than a shoebox, heck, I'm interested.

Apparently, I really missed an opportunity. $335K for a SFH in that location of Cambridge really isn't too bad. Unless the place was falling down...

What we really need to see if the before/after photos....if they look practically the same, now that would really be hilarious. Apparently someone didn't get the memo about the current RE market. I wonder what their relative/realtor is thinking.

Sometimes you can get lucky and dig up original photos and listing information from the previous sale.

Yep, I've been watching it, they are practically the same. New appliances, new paint, and its a "gut renovation"

It sat at the previous price for a while, and even had a sale fall through as I recall. Really challenging to see how a 300k increase is going to move it faster.

I still have access to the pics, but have trouble getting an address to post here. I'll work on that

nope, can't seem to do it.

But ABG, you might take a look at Cambridgeport. Up and coming neighborhood, good fundamentals, good prices. Excellent transportation.

ABG are you dead set on being along the redline, or have you considered other transportation options like express buses (I took that to work every day for two years - a lot of people don't know they exist but they are GREAT) and commuter rail? There are still some affordable areas where you can get a SFH and still be within a reasonable commute to Boston.

For most people, when they hear Commuter Rail they think of Fitchburg or something but there are still communities where you are within a few hops of Boston and it's not much longer of a commute than taking the redline.

We're considering certain neighborhoods---close into Boston with a commuter rail within short walking distance too. Just haven't found "the one" yet and there's no rush.