Goodbye home construction, hello higher prices

And who will be buying these million dollar fixer-uppers?????? According to my calculations a million dollar house with a 20% down payment, at 6 percent interest, property taxes of $4500, the required income to "afford" this imaginary home would be $225,202.85 per year (using the 28% rule). I think we can say "been there, done that" with regard to million dollar fixer uppers. We lived in a decade of "fake" wealth that isn't coming back anytime soon. Cash is now king and now we will see who is truly wealthy around here. Just because you could get a mortgage for 900k does not make you wealthy. Back to reality. Sorry all of you 40-60 somethings who thought that they had struck it big in Real Estate! Maybe working for the government for 30 years wasn't a bad choice! 80% pension here I come!

"But the virtual extinction of the local home building industry will surely come back to haunt us here in the Bay State someday when the market eventually comes roaring back."
It's called a business cycle. When demand returns, suppliers return. I wouldn't worry about being blindsided with a new building boom. After Wall St and Detroit come back to the trough a few more times, we'll be more worried about making interest payments on national debt than finding a siding contractor.

I don't know about this. Taking into account the shifts in population affecting Mass., and the aging of the Boomer generation, won't these offset any drop in new construction? And since new construction is such a small part of the market anyway, will it really impact prices? Maybe it impacts folks who want to buy a $700k+ house and condo owners, but you think it'll affect the mid / lower market ($450k and below) homes that most folks seem to have their eyes on (since it seems new construction is ALWAYS condos and mcmansions)?

My wife and I are currently working through the final details of starting of new home construction project. The downward pressure on prices and builders looking for work have made the project much more affordable than it would have been in the past. New construction for a nice home in a nice area is still not "cheap," but we have found that our new home construction dollars go much farther than they would for an existing home.

Since November of last year the Fed has TRIPLED the amount of currency in circulation. Couple that with the death of new home construction and we are laying the groundwork for the mother of all housing bubbles that will last for decades. We can all thank Helicopter Ben Bernanke for the next explosion of home prices.

I'm not so sure - developers are pretty fluid, doesn't really take all that much lead time to pull a permit and get digging started IF there is land to do so. That's the real issue in Mass., the restrictions on development (not that I oppose many of them, but they are no doubt a constraint on supply)

Houses in Massachusetts were quite cheap in the 70s even without new developments... there are other variables that matter

How many times do we have to debunk the "their not making any more land" myth. Land availability is only one variable. Wages and access to credit are much more important in determining home prices. That's why we had a bubble in the first place - anyone with a pulse could get a low interest, no down payment, negative amoritization, ARM all while lying about your income. Those days are gone.

If lack of land drove prices, then Massachusetts should have experienced a BIGGER boom than places like Phoenix and Las Vegas where land is virtually unlimited. But that's not what happened. Massachusetts experienced less of a boom (which is why we are currently experience less of a crash).

New construction always seems very expensive $500k+. Is it possible to get a new home built for less than this, or is that just the entry price?

J1mbo01: Per the US Census, $225k for earnings would be the top 15% of Norfolk County households (rough estimate, actually looks a little higher), or 37,300 households. Also per the Census, there's 169,000 SF homes in Norfolk County, 10% of which (again, rough estimate) are above $1 million,or 16,900. So, if half the households lose their job tomorrow, there's still more income-qualified households than homes at that price level, which is why prices in the more affluent towns; Newton, Wellesley, etc. haven't actually dropped. Maybe that trend will change now that those households are being asked to cover more of your pension, but hey, the budget has to clear Congress first.

"Buy now or be priced out forever!"

Where did we hear this before?

We were going to do the 'new construction' route and design our own home as first time home buyers. We named our price to the builder who owned the land we wanted. They basically laughed us out of the town- that was in June of '08. We bought a fairly new house in Sept of '08 at a price that we were happy with, 1.5 miles down the road from the lot we wanted.

We received an email from the same builder in December- they said they'd build us 'our dream home" at 20k below the price that we told them in June.

Now who has their tail between their legs? They probably should have thought about our original price when we wanted to build. If they had they wouldn't still be sitting on another empty lot twiddling their thumbs. Maybe when we get rid of this house we'll give them a call . . .

Does any of this matter. The problem is with existing housing in Massachusetts and that it's still ridiculous. It's well above most of the country. On top of that the politicians tax you to death to pay for all their bad decisions and their mishandling of tax-payers funds. Example of the way this state works: My brother in-law's house was just re-accessed and is now worth less but they changed the tax percentage so now he's actually paying $200 more a year. Don't you just love Mass. politicians.

MA prices will continue to drop, wait another year or two (preferably) to buy anything here. We're headed much lower...

In reply to "Priced Out", it is possible to find new construction for less than $500K in the metro area. We just bought a detached home that we love in a new non-age restricted condominium development called the Villages at Stow located in Stow, MA which is just inside the 495 loop. If you want new construction for less than $500K, you have to be willing to be a little further out from the city and possibly a little closer to your neighbors. Good luck!

Lou - Disagree. No one has debunked the "their not making any more land" myth. However, no one phrases it that way either. Land constraints (a.k.a. limited build-able land within 128) in MA are real and exist. As such, it is not a myth but a reality. However, it will not keep the boom going in MA or prevent a fall. It will, however, always keep MA more expensive than KC for example.

"With home values falling all around, no one is worrying too much these days about housing affordability."

Unless, of course, you are actually looking to buy a house around here.

If the cost of housing in the Boston area is due to land constraints, then why haven't rents skyrocketed along with house prices? Why hasn't the vacancy rate gone to zero? If there were a real housing shortage, wouldn't that happen? But it doesn't; despite the constraints, thousands of units were built around here when the money flowed, even though population was not increasing that quickly.