Will the rich towns escape?

Simple answer - anyone who thinks rich neighborhoods and towns will escape is deluding themselves.

A rising tide lifts all boats. A sinking tide brings them all down. The pricing etc on a 200k house actually affects all houses up to the ultra-luxury segment (which is probably 5million, though don't hold me to that)

Finance layoffs have already been announced. That will cut demand for those areas. Many purchases in these areas are financed, and jumbo loans are tougher to get. That will also cut demand.

Granted the "gold towns" and areas haven't gone down yet. This isn't the slightest bit surprising. Wealthier people have more access to credit, generally family they can borrow from, better savings, etc. Thus, they are forced into sale later than people who are living paycheck to paycheck. It would be crazy to think Wellesley will get hit at the same time Brockton and Lowell get hit.

But the bubble affected the gold towns as well as the poor towns. And though I'd expect a flight to quality, and hence smaller drops in prices in such areas, the price drops will still be significant.

As happened the last time this happened, back in 1989 or so. Amazing how many people have forgotten that recession and what happened to housing in it. And this recession could easily be much worse - it certainly won't be better.

Nothing else really needs to be said. It would be interesting to see if there is ANYONE out there who still honestly thinks that these town won't be affected.

All the prices are still way too high and all will come down to earth.
The median sales prices may be the same or even increasing; but the $ per sf have dropped by at least 10%... even in Wellesly, Weston, Newton, etc.

Does it really matter? These areas are out of reach for 95% of the people living in Massachusetts. If a $1.5 million dollar home sees a 30% drop in price to $1 million, most people are still not going to be able to buy. Fact is, the recession, falling stock values, threat of unemployment, etc. will greatly affect home values moving forward in the areas that are not "immune". The entire global financial system is in shambles because of the subprime debacle (and many other reasons too). So, what happens in Dorchester, does not stay in Dorchester.

Bottom line, home prices in most areas are still too high based upon fundamentals and most areas will continue to see price declines.

Yes, to some extent rich towns will suffer less than poor towns. That only makes sense. The more wealthy people are, the more buffer room they have to suffer an economic downturn. However, everyone will suffer to some extent.

We bought a nice but smallish house (our first house) in Winchester at the height of the market (2005). (Wish we'd got a subprime mortgage so that someone would bail us out, but I digress...) While I regret it to some extent, we needed to live somewhere and we've been happy. Love the neighborhood and the schools. Since we do not want to sell, it doesn't matter much if the prices go down, which I am sure they have and will further...they will go back up eventually. We can still afford the mortgage.

As an aside, however, the houses in our neighborhood have been selling for higher and higher prices throughout the past year (and quickly too). My guess is that they will come back to earth soon, but I can definitely see why people think "not in my neighborhood"!

If the recession is severe, I'm sure it will affect home prices in the Wellesleys and Brooklines of the region, but I also think that most owners will be less impacted, since my sense is that fewer homeowners in such towns risked straining their finances to live there, and so have a much larger financial cushion and will less likely *have* to sell.

I suspect that many more people stretched their financial limits to the breaking point to buy up in places like Newton and Needham. I think these places will see higher levels of foreclosures and price declines even if the likes of Weston/Wellesley/Brookline escape relatively unscathed.

"As happened the last time this happened, back in 1989 or so. Amazing how many people have forgotten that recession and what happened to housing in it."

That's probably because I was in high school at the time. Was that back when a quarter would pay for a trolley ride out to Coney Island and a day at the picture shows, with still enough left over for a stick of licorice?

"The median price in Wellesley shot past the $1 million mark as of the end of October, compared to $993,500 the same month last year, the Boston-based Warren Group, publisher of Banker & Tradesman, reports. The median price in Weston rose to $1.3 million, up $170,000 over the past year."

One more time, median price in a by itself tells you nothing. Look at inventory to sales, average price per square foot, past sale price to present, and you will see these areas are getting hammered as well.....

I'd love to see a town by town map that correlates home price changes with unemployment in the 1980s ... we might get a decent sense of how unemployment impacts high-worth towns that tend to be more insulated from fluctuations in the job market than other places ... tried to find something like that on the web, but no luck ... anyone?

Mutt - I was in college. Granted I've forgotten a LOT of that, (beer is important) but I still remember what was happening to real estate. Though granted I also studied real estate history in order to understand it better when I got into it professionally.

Hard rain - yeah, that's why case shiller is actually the best, despite its flaws.

But I wouldn't even be surprised if gold towns were still going up (though I think in truth they have been on a plateau for a while). People really do believe it can't happen there. Despite history.

The recession will trickle down to these wealthy towns because the majority of these families work somewhere, and all industries are taking a hit. This is a rehash of a similar argument earlier this year that commercial real estate will hold up because commercial real estate mortgages were held by "wealthy" companies with stellar credit, whereas the subprime mortgages were "main street" regular folks. That argument is dead as we have seen casinos, hotels, and retail shops close down. The last I checked, many "wealthy" folks were owners of auto dealerships, construction companies, specialty retail shops, etc... Regular Joes are living paycheck to paycheck so the impact are more noticeable, for the wealthy, the question is if they can survive this recession for the next 3, 4, or 5 years?

Happy in winchester, if you want in on the bailout, just stop paying your mortgage. And while you are at, go get yourself a job that pays less. If you are married, make sure you or your spouse quit their job. And be sure to rack up a ton of debt.

Once you can claim hardship and can't make your payments, you can just sit back and wait for a renegotiation of your mortgage terms. Sure you will tarnish your credit record, but you'll get to essentially live rent free for a year and then you will have your debt burdened lowered.

God bless America!

I think it will come down to how much you've spent that you didn't have to begin with. I believe all towns have those who spend more than they earn...but I also think the W towns and Brookline have a lot less of this mentality. Many people in these towns knew to save for this rainy day and have a cushion. It's those who haven't learned that lesson that are getting hurt.

I used to live in Winchester, it is perhaps the most over-priced town in the Boston area. It makes no sense to buy a house there.

Hung Wang -
Ok. To each his own. Doesn't address the issues being discussed in this blog much, but certainly you can have your own opinion. Where may I ask did you move to? On what basis do you think Winchester is overpriced (beyond the fact that all of eastern mass is overpriced...)? Do you believe your current town is headed for a fall, or do you believe that the prices are stable, and on what do you base this?

I now live in the West End of Portland, Maine. In Winchester, one can buy a 4,000 square foot house on a postage stamp lot in the flats for no less than $1.4mm. I can buy the same property here for 2/3rds of that. I lived there for seven years, and found many of the people who bought there had really stretched themselves financially to be there. Let's say average household income in the town is $140k per year, and a decent house there runs 650k anyway. That is 4.64 times the average household income, an ingredient for financial suicide. Prices here in Maine are headed lower as well. I rent here however, fully expecting another 30% drop

I actually have a dog in this fight because I'm bidding on a property in Brookline. Yes, I'm putting in a low offer too (12% below asking). The home has been out there (listed a few times) since April and hasn't sold and the markdowns have been minimal. But I must be really missing something or even Brookline's on the decline slightly, because I thought the askng price was actually pretty decent for the area, size, condition, etc.

Market value discussions aside, my husband and I are bidding what we can afford and we've stated that to the seller. No one can argue with that. If she takes the offer great, if not, there's always the spring market.

Hung Wang -
Good points all of them. At least you probably made big money when you sold and moved to Maine. Probably no shocker that a close boston suburb (really any of them) is more expensive than Maine. Do you have to commute to Boston?

We actually considered the size of houses and yards when we bought in Winchester. Bought a smaller house that we could have in say Acton. Commute to Boston however, was a bigger factor for us. And of course decent schools. We have many friends who live in great houses in towns that they cannot or choose not to send their kids to the public schools. Cannot speak of people in the town as a whole - how much they stretched - but your analysis may be right. Probably true in Arlington, Stonham, Woburn, and all of the surroudning suburbs. Heck, probably true everywhere...

A. BG - We did the same thing. Looked only at houses we could afford, and offered only what we could afford. When we applied for a mortgage we ask how much they would let us borrow. They said (quite frankly) that they would loan us "as much or more than we wanted". Think that is the crux of the whole problem today.

That's a good attitude ABG, though as an aside, people will be hungrier at the end of the spring market when they still haven't sold (of course, appropriately priced houses will always sell quickly, that's a given. Amazing how many don't see the corollary, which is if the house does not sell quickly it is not appropriately priced)

glad to hear you were prudent about your home purchase, Happy, so many saw dollar signs, and got in over their head. I have a 20 minute walk to my job in downtown Portland. Winchester is a great town, one of the best in MA, just pretty over-priced like Weston, Wellesley, Wayland, Newton, et al.

What is "market value" these days with the government intervening everywhere? Stop the government intervention! People must not be able to count on future bail outs. It should be made clear - no bail outs for anybody. Only then may we see true values of the properties.

I don't doubt that at the end of a bad spring market (which I am predicting) that sellers will start feeling some desperation, but one of the things I also realize is that as first-time home buyers, we often don't have the financial resources to compete with buyers who are moving to their second or third homes, or first-timers who are getting help from their family. The fact that so many "would-be" buyers are stymied by not be able to sell their present home has been an advantage for us. As of now, I believe we are the only bidders on the property, I don't think that would be the case in a spring or summer market. The mortgage prices have the best we've been able to get yet---it'll be interesting to see how that goes...if the offer is accepted, we have to decide whether to lock or not, and for how long.

Even so, we aren't in a rush and won't be sad if this place doesn't work out (heck, we're getting kind of used to it since its our 3rd offer since March but we're SO happy those didn't get accepted), but the fact that its an area with strong schools gives us a little more confidence to buy now, rather than buying now in other communities. People can't stop sending their kids to school because of a bad economy, and private education is pricey--there are lots of parents running into trouble with day care costs, afterschool program costs, college aid now and some students are having to put education on hold. Parochial schools tend to be more reasonable in cost, but still--I'd rather buy a home in a good school system and invest in the community that way. There is no guarantee that a child of mine would make it into Boston Latin and my husband and I are big believers in public education.

I think that's the biggest thing going for these "golden" towns--the school systems. I think they will definitely see an down effect (I'm seeing in my current bid which was not remotely possible a year ago) but nothing remotely like what I saw in communities like Dorchester, or even communities like Roslindale, Hyde Park, and even Milton. Milton has a good school system, but even I must admit Brookline schools are an entire other caliber and its more urban (which we prefer) with more restaurants, fun shops, etc. It might not matter much if it were 5 years ago and kids weren't on the horizon, nor might it matter much if we weren't planning on having a family, but as we are, I'd rather not take my chances given how long this downturn could drag out that I won't be able to "trade up" for a home in a better school system in 5 years.

So we wait and see. But we aren't going to stretch beyond what we're comfortable with and we think that things will likely work out fine in the end. We're being very careful, having a lawyer look everything over before we submit, and we have an inspector in mind if the offer's accepted.

ABG - I fear I don't agree with your analysis of how being a first time buyer will affect you - I actually think you are in a better position than a current homeowner - but I agree with you on the importance, both financially and otherwise, of a good school system.

I'd be surprised if you aren't better off waiting till next summer.

patience, those who can wait another year or so to buy, will be rewarded....

Well, the die is cast.

Our offer was accepted today, and we'll be doing P&S on 12/15/2008 and closing in February. With any luck, that 4.5% rate may come to fruition in the next month or so and that'll be a little bonus.

I won't post specifics details until we close, but we are getting the condo (3 bed, 2 bath, 1600+ square feet in Chestnut Hill, with new kitchen) for 12% below the original asking price, seller paying closing costs. We'll be there at least 5 years (thank god, moving is over) but more like 7-10.

Let me say I have not lived in MA for over 8 years, however I think Charles is missing a key point, Schools, Schools, Schools. My kids private school cost 19k a year per kid. If I was to move back to MA, I would only choose to live in the top tier towns.

we need more knife-catchers like A.B-G to help reduce bank losses.

No, as you can see in #23 I agree with the importance of schools. Never have doubted it for an instant - you can actually do a little bit of math and see that the premium for good schools is actually much less than it should be.

But that's relative positioning in the market, of course.

Good luck ABG. Sounds like you did a lot better than you expected when you first started posting here.

Thanks Charles!
I remember a discussion months ago where I stated that I didn't believe in just saying that the market was going down and not seeing if there might be a deal to be had somewhere amidst all the inventory out there. I still believe there can be exceptions out there if you look, bargain hard, and stick with what you can afford.
You will definitely not find me disagreeing that the market is still troubled, will likely continue to sink, even in the golden towns, or believing that any locale, even the one I am about to become invested in is immune. I still believe that probably 90% of the stuff out there is way overpriced and that people are asking either a good price (if they had only kept and occasionally updated their property, which no one seems to have done) or they are asking for the moon.
If you find a home you like, in a condition and place you like, and the seller is truly ready to do business, a good price can be had. Does anyone here predict that if I had been more patient and waited that I'd be coming up with a condo that is larger, on a less busy road (which doesn't bother me, but will probably effect re-sale value), or a single-family home in the same neighborhood? I say the same neighborhood because if money were no object (a good exercise to do if you're home buying), this is the place we'd pick by far.

In my situation, if I look at neighborhood condos recently sold the average price is about $343.00 per square foot. If I go with the price I'm paying for the condo (not including seller concessions) I'm buying at $218.30 (37% less than recent sold comps) per square foot. Including seller concessions, $221.29 (36% less than recent sold comps). I don't know the conditions of the other units, but some include AC, a less busy street, and deeded parking. The unit I am purchasing has a 3-year-old roof, a 5-year-old furnace, 4-year-old kitchen (with the granite counters everyone got all debate-y about), and basically needs our paint colors. Any improvements we foresee will maybe involve some built-ins, adding shelves to closets, things like that.

The cheapest single family that sold recently in the neighborhood went for almost $700K for 1,480 square feet ($469.59 per square foot) but most homes now at the $1.5 million range around my future address. Others recently sold close by have sold for over $6M in the last half year.
If I take the pretty reasonable (at least in my opinion) last sale date of this condo (June 2002) and get a sense of what the basic rate of appreciation would have been from the date of sale then and my closing date (a method someone a few months ago suggested in how one might determine true market value) and run it through a basic interest compounding calculator (tallied annually at the end of each year) I get a rate of 3.04% appreciation.

So, the way I see it, there would have to be the mother of all depressions or a complete real estate apocalypse for me to regret this choice. My husband and I are also really, really lucky that we have extremely stable jobs that would also require a major apocalypse.

I still definitely tend to follow the board. Truly, I've found it incredibly informative and interesting to hear people banter back and forth and people find it interesting when I discuss many of the topics mentioned here. This is still only our first home purchase and I'm sure I have tons to learn, but reading stuff here each day has sort of become part of my routine and I don't anticipate that changing. So I'm not going anywhere in that sense.

Well, I thought the nicer towns would be spared until I lost a listing in Canton to public auction on Thursday. I didn't have one offer on the property in almost two months. The property was listed in the $600's. Yikes!