Tracking July home sale prices, the Case-Shiller way

Three months of small increases does not a trend make. We are still no where near the bottom. With credit markets all but completely seized, home prices will continue to plunge. Remember, it was the massive expansion in credit (inflation) that caused the real estate bubble. We are now experiencing credit contraction (deflation) which will cause real estate prices to fall. The only way prices will resume their upward trend in the near future is if the government creates so much inflation, that nominal prices rise. Of course, the price gains will be meaningless because they will come at the expense of higher prices for everything we buy. What matter are real prices, not nominal prices. And the fact is, real prices for homes have been plunging for the last 3 years.

Cue the usual responses: Tout seasonal increases through the summer as a positive turnaround. Downplay year-over-year declines. Insist it's different here because we have so many neurosurgeons or something. Declare that our prices never went up that much, furiously ignoring the actual data to the contrary.

Sadly, Boston is not immune from the global financial crisis. In fact, places like Boston are part of the problem. In markets more heavily driven by subprime loans, the peak of loss severity has already passed. Here, where different bad loan structures held sway, the peak of rate resets and such will not occur for two more years. Past resets tied to LIBOR were pretty mild, but now as the LIBOR leaps to astronomical levels, more and more mortgages in tony towns will become flat-out unaffordable in the next eight quarters. As a result, Vegas and Miami will find a bottom before Boston does, and finding a bottom is an absolute requirement for getting the banks and the economy moving forward again.

In fact, most analysts pointed out this means we are nowhere near bottom yet.

I expect the usual pointing to month over month data, which is only marginally relevant, and ignoring year over year data, which is what actually matters.

Yes, the Boston market is flat now, I think we all agree on that. Where we disagree is what it means. Some think it means bottom, some, like myself, think it is the calm before the storm.

Do any of you have any insight on the condo market downtown? The realtors and their associations are always saying "oh it's very strong..." I am beginning to wonder...esp for prices that are say over $700K and less than $1.5M or $2M. Over $2M I feel there might be more price insensitivity, but in the pseudo luxury market, where do you think we'll go??

Who are you guys arguing with, I don't see anyone calling this a bottom...The blog states that Boston is down 5.4% YOY, nothing in here suggests a bottom...did you actually read the blog or are you just angry renters?

marcus, just one nit: surely the LIBOR won't stay at current levels for eight quarters. One would imagine eventual passage of a bailout, and whatever else the government comes up with next, will bring it back down. At some point in the near future banks have to start lending to each other again.

JohnMarcusCharles - I agree with you 100%. In our current economic environment, if nothing else, this blog and some of the self proclaimed "experts" who post sure do give me a good chuckle.

"On the brighter side, home prices in Atlanta, Boston, Dallas, Denver and Minneapolis have reported three months or more of price increases, though prices in those cities remain lower than a year ago." - WSJ

This is the quote from today's WSJ online. It reported on the new S&P/Case Shiller index. Looks like Boston is one of very few metro areas in the country that's doing relatively well. The bubble burst about two years ago and I don't see prices falling that much around here. They fell a little in some areas, but I see no housing crisis. I am a potential buyer waiting on the sidelines,

Congratulations Alex for seeing things as they are!

I know, I know, I hate sounding like a broken record but it looks to me like the Case Shiller results have confirmed what I've been bleating on about for a while now. Boston is weathering this so-called "crisis" with flying colors.

While the Boston Metropolitan Statistical Area itself might be down on a YOY basis, keep in mind that that area includes undesireable towns areas as Quincy, Dorchester, Roxbury, Mattapan, Hyde Park, East Boston and Chelsea. These places have been rocked by foreclosures.

Meanwhile the downtown nabes of Boston Proper continue their unending upward trajectory. Were we able to factor out those, frankly, horrid places I daresay that the numbers for Boston would be UP by double digits.

Boston? Up. Brookline? Up. Lexington, Arlington, Wellesley, up up UP!! Crisis? What crisis? We're doing fabulously! We're experiencing a housing boom around here which shows no sign of abating.

So Alex, get off those sidelines! The sooner you get in the game, the sooner you'll start to see the kinds of appreciating gains that the rest of us in the city center market(s) are glorying in. You can't win if you don't get in the game!! Though I understand that getting in requires fighting against thousands of others like yourself, as long as you possess the resources, drive and patience to stick with it, you'll be a supremely happy member of our little club. Good luck!

Hysterical, JMC. In the rush to criticize, you should have looked behind you to read the posters who behaved exactly as we predicted. Snort.

accidental, I haven't the faintest idea what the bailout has to do with the LIBOR. Neither does Paulson or Bernanke, for that matter.

Bailout is supposed to help out liquidity and thus lower LIBOR Marcus. Whether it will do that, or even will actually pass, is another question.

I note the usual suspects are focused on the month over month data, and ignoring the fact that year over year is far more relevant in real estate. Do you suppose they will keep that up into January when Month over month takes its seasonal turn south? They were pretty quiet on that last year.

I've been talking to actual good south end real estate agents, and unlike sunshine and lollipops, they think things are pretty flat. Wonder where the up comes from?

I will agree with something above - given our current economic environment, there are indeed some amusing posts on here.

Actually John Marcus, the blogger asked "What does this all mean overall?" and those of us with a basic understanding of what is going on responded to that very question.

Sunshine, I can't tell if you are being sarcastic. I hope so, because if you are this clueless as to what is going on with real estate, the economy and the financial system, you best take whatever money you have, stick it under your mattress, curl up in a little ball and don't leave that position for at least a year.

People like you are in for a HUGE wake up call.

Wow. S&L is one extremely bitter realtor. Buy, buy, buy! Guess that commission isn't rolling in as easily these days.

I wouldn't be surprised that South End, Beacon Hill, Back Bay homes remain in demand. But that's completely irrelevant to my situation and will not sway my plans for the next few months. The fact is, the typical buyer for those markets is a) not a first time buyer, unless they are a trust fund baby, and b) very well-to-do.

If you are a "plebeian" family, like my husband and I who make $115K a year working as a college administrator and a web developer, and don't have family willing to gift you with a downpayment or trust fund, we have to look at some other options. We want a single family starter at $350K, no more. That's what we feel comfortable spending on. Having families in Pennsylvania with homes worth less than that, I am amazed that spending that kind of money for a first home is poo-pooed here. Mind you, my husband and I make almost 2x the typical median income for the City!

Since January, I've visited houses in Eastie, Southie, certain parts of Dorchester such as Savin Hill, Jones Hill, and Lower Mills, Hyde Park, and Milton. I have done home drive-bys in Allston, Brighton, Roslindale, and Newton. I've seen listings for blighted properties in all of these neighborhoods and I've seen a lot of overpriced junk, and a lot of very unrealistic sellers. Ultimately, our first choice is Milton Village, near the Mattapan extension.

To say that the entire Boston market is great and somehow exceptional from all the financial troubles, because Beacon Hill, South End, Back Bay are great is just plain irresponsible. They are in a completely different class. The fact is those areas are a luxury market for a limited and probably becoming more limited pool of buyers (depending on how their investments are managed).

9 months after I started looking I'm in a new lease, new rental, and taking a break from house hunting for awhile. In the meantime, I'll continue to build up my downpayment while this financial mess settles where it will settle.
I would have argued a couple months ago that there are always reasons for some people to buy now. But after seeing what I'm seeing and have yet to see, I don't think anyone--even someone who wants to buy in the South End--will be hurt by waiting a season to 6 months.

Let's put one thing to rest: Sunshine & Lollipops is sarcastic. Make that uber-sarcastic. For him, anyone on this blog who is even remotely optimistic about any aspect of real estate is so deluded and dumb, so utterly beneath contempt, that they just aren't worth responding to seriously. And I suspect he enjoys immensely the confusion created over whether he's serious or not.

You know, I actually think Sunshine and Lollipops is serious... Though it could just be a troll of course.

Ladies and Gentlement - whether S&L is being sarcastic or not, the fact is prices in the greater Boston area are still unreal as compared to incomes and rent. As I said, I am a potential first time home buyer and I suspect it will be a long time coming, if at all, until the prices come down enough around here. To add insult to injury, the housing inventory around here sucks. It is mostly very old and colonial and there is not enough quality townhomes around here. Has anybody seen a newer condo apartment with four bedrooms in this area? If yes, how much would that be? I don't want to drop $400-500K on crap.

Satire is often missed - especially "on the uh, Internets" as our prez might say. I admire the little details in those posts.

We've heard this story before, no: Boston among the best of the bad news? Maybe things will flatten out, but I don't see why considering all the instability is not likely to vanish in one day, week, month, is it?

In the meantime, I still see a lot of junk properties out there (I'm talking outer-Boston neighborhoods and certain directions inside 495 if that matters) for prices which ought to net one a very solid home.

A.B-G: I'm in a slightly different situation (not a trust fund baby, trust me) but we are lucky/blessed to be in that upper income category (>$250K). However, even we find a tough time finding nice places for $800K-$1M in the city. For that price, I want something we really like and some place we can stay in for 5-7 years if we grow the family. I too find that many places are overpriced right now and sellers will have to re-assess or first time buyers like us will continue to rent.
I think that the places that might be immune to the crisis might be in the $2M + range, where buyers are not typically impacted much by the economy.

duh, ya think? personally I enjoy reading the responses from those who take his posts seriously. c'mon!

I'm truly disheartened that people still seem to think that I'm being sarcastic, ironic, satirical or mocking. I'm a SHE by the way!

I can only attribute this impression to the fact that those claiming it must be living in less desireable neighborhoods which are experiencing the kinds of price declines and foreclosures that the downtown city center market is immune from. I can understand that from your vantagepoint, things must look pretty bleak! Trust me I've been in this business for a long time, and even survived the horrible market of the early 1990's. So I understand what it can feel like.

But trust me, here where I'm operating, things couldn't be brighter. Boston of 1990 is most decidedly NOT Boston of 2008. Our economy is far less dependent on a few high tech companies (Digital, Wang, Data General, etc.) and mutual funds (Fidelity). We're now a mecca of diverse entrepreneurial startups in high tech, biotech, pharma etc. We have a booming job market for law firms, medical and educational fields. If a sour economy amputates one arm of our economy, we have 7 others to take up the slack. As goes the job market, so goes the real estate market, and our job market is solid. Our city is far far richer than it was 18 years ago. The wealth flowing around our streets is mind-boggling.

But not only are economic trends supporting us, but demographic trends favor us as well. Gone are the days when people were fleeing the high-crime central cities. In the 1990s, having a suburban McMansion with a large gas-guzzling SUV in the driveway was all the rage. Nowadays, the word "suburb" means high carbon footprint, uncool, traffic gridlock, oversized, wasteful, whitebread, non-green. People are returning to the city in droves to escape the mind-crushing sameness of strip mall suburbia. The city now conjures "cool", sophisticated, car-free, diversity, cutting edge, low carbon footprint, hip, young and creative. The city is Prada. The suburbs? Wal-Mart.

I know where *I* want to be, and so do tens of thousands of others. And it's this demographic shift, in addition to our creative economy, that will protect us. Those lucky enough to get on the escalator will enjoy being carried to ever higher heights. The others who sit by the side and snidely snipe, saying we're being ironic or sarcastic? Well, all I can say is I'm sorry and I hope things work out for you. In the meantime, save me a table at Rocca!!

By the way people this is about boston, not all of massachusetts. just boston. which alway shows a bitof an increase from june to august thanks to the college crowd.

Oh yes S&L, the, what 2% of the entire population of Massachusetts with incomes over $200,000 are going to support the entire real estate market? Massachusetts is not immune to the recession and is not immune to the credit crunch. And if people are losing jobs and more importantly cannot secure loans, HOMES WILL NOT SELL. And when homes don't sell, prices collapse. End of story.

Oh I agree very much with the idea that its better to live in the City, rather than the burbs? 2 hour commuting for me?...no thanks. Of course, Schools are a concern, but there's parochial schools or Boston Latin to say the least. Milton has a solid school district--but we don't even have kids yet.

That being said you can live in Boston and live in...
...Hyde Park, West Roxbury, Allston, Brighton, Jamaica Plain (which has some of the nicest homes in the city), Dorchester (which as a transplant I thought must be hell...but I'm living in Lower Mills now, and love it), Southie, the North End, West End, Charlestown, Eastie, Chinatown...am I forgetting any?

It is not a choice of Back Bay, South End, Beacon Hill OR Outer Mongolia. Maybe someday we'll be in the market for that kind of a neighborhood (after my husband starts his own design firm and makes us millions...we won't get there with me working in higher ed, that's for sure). You won't catch me feeling sorry for myself. The fact that I can afford a $350K house for my first home, is frankly, amazing to me. And I'm sure the right place will come up at the right time.

I like your attitude A.B.-G. I don't think sophisticated urbanites have only the Back Bay, South End and Beacon Hill to choose from. In fact, to my mind, as the downtown market becomes exclusively the province of the rich, it's also getting a lot more boring. (How I miss the old Copley Place movie theatre playing independent films --- now we're stuck with Barneys for culture!). I think the culture of the city is moving out into the less central neighborhoods where smaller, creative businesses can afford to stay in business. (The neighborhoods that S & L so disdains.) A walk down Centre St. in J.P or through Allston Village in Allston- Brighton is far more interesting than anything you can find downtown these days. I agree with you that there is not a lot of good housing inventory out there right now, but as you said, if you bide your time, something will come up. My advice to you, though, is to stick to outer neighborhoods with transportation alternatives to the car. I think sticking to a walkable neighborhood that is T friendly is the one thing you can do to protect your housing investment in uncertain times because the price differential between urban and suburban is likely to grow, no matter what's happening to the economy. And even if the value of your house drops, at least you'll be in a great location where you can reduce or limit your car use!

Rocca? Please! Thoroughly mediocre. Just had a nice dinner at Toro tonight though.

The south end is a nice neighborhood, no doubt. It is not immune to the things that affect the rest of the planet (and specific stuff to it - I'd be very leary of buying a bottom floor apartment in the south end... )

Sorry S&L I'm not buying it. It was a nice attempt to sound genuine, but all I have to do is read the previous posts to know I'm right. Here's the thing though, you're obviously clever, have thought long and deeply about Boston culture and what you see as its snobbery, predjudices, naivite and delusions. You're smart and interesting. So why not drop the mask and say it plainly?

Thanks Urbanite. We have the same spirit, when it comes to staying close to town. I don't own a car after selling it a year ago, although I'm getting a used one soon free from the in-laws so I don't have to deal with Zipcar's ever lousier service when I need to run to Costco or Home Despot. I don't ever imagine commuting in a car to work--it just takes too long and I miss out on my reading time.

Based upon my own preferences I would really like to see some different areas of Boston revitalized and more popular, and for many good people to take an interest in some of these neighborhoods that have fallen upon hard times and crime. That is, once the market calms down and recovery eventually begins...whenever that happens. Someday it will. In some areas, it had already begun before 2006.

Truly one of the remarkable things that I appreciated since starting house hunting 9 months ago---I got to see just how suburban (West Rox, Hyde Park, JP) so many of Boston's neighborhood's seem, or how wonderfully diverse parts of Dorchester are, or the great waterviews from Eastie and Charlestown. Or the history of Savin Hill or Ronan Park--fascinating. The people I've met in each of these neighborhoods were really interesting to talk to when catching breakfast at a small mom-and pop diner in Eastie or hanging out in a park before an open house.

I lived exclusively, until a month ago, in Allston-Brighton, and since I worked for two of the Universities nearby--it was so easy for me to stay within my same neighborhood for months at a time. I agree with you that that neighborhood--while it has its flaws in its very transient and often rowdy residents, has a charm in its storefronts and pubs that is lacking in many of the other lux areas of the City. There is a gritty, bohemian culture there and its reflected in the stores and a great deal of fun for young professionals and students. For me, in my late twenties, it was just simply time for something different, but I'll be back for steak tip night at the White Horse and beers at Sunset every so often.