Cambridge a bargain? You've got to be kidding

Calling Cambridge a bargain city is just plain silly...it is not!!! But then again, where would you rather live, in Cambridge or Detroit? For my money, I'd rather spend 500k and live in Cambridge than 50 k and live in Detroit, but thats just me.

The Cambridge Newton Framingham Metropolitan Statistical Area includes very diverse places all the way to the NH border. You can Google a map. Some areas have (or had) the jobs, others have the cheaper houses. It is usually combined with the Boston-Quincy MSA for reporting purposes.

If we're going to discuss housing prices in terms of whether we'd rather live in Cambridge or Detroit, I have a busy day, sorry.

Rona mentioned the W towns so I decided to look at some stats. Sales volumes in these towns are pathetically low right now (low single digits per month for both towns) so trends may be misleading. But check out the obvious disparity between what properties are listed at and what they are actually fetching in the market.

Weston:
Median List $: $1,595K
Median List $/Sq.Ft.: $413
Median Sold $: $1,047K
Median Sold $/Sq.Ft.: $304

Wellesley (02581):
Median List $: $1,595K
Average List $/Sq.Ft.: $433
Median Sold $: $1,250K
Mediam Sold $/Sq.Ft.: $334

As I have been saying for months, these towns are not immune from the slump... In fact, I predict they will be some of the harder hit areas in the upcoming months. The reason? Houses in these towns are expensive. Except for cash buyers, anybody who purchases will need to qualify for a jumbo loan. Jumbos are very tough to get these days, and the rates are very high compared with conforming loans. I also believe these towns will suffer disproportionately from the continuing employment fallout in the financial services sector. Let's face it, these towns are home to a lot of well-paid (or at least formerly well-paid) professional types.

One more thing, I enjoyed a good laugh when I read the comment above about Cambridge's favorable “employment” picture. Something tells me the author of that article was not referring to Central Square...

"If we're going to discuss housing prices in terms of whether we'd rather live in Cambridge or Detroit, I have a busy day, sorry." Thank goodness, for our sake!

Discussing where people would rather live is at the root of housing prices. People would rather live one place, so they pay more than another place. Might be a new concept for some, though. :)

While we are talking about Cambridge, April data is just out. Here is the year to date data including April for Cambridge. Prices are down a little over 10 % from highs in 2007, but up a little less than 5 % from last year. Essentially on par with 2005 prices. Certainly no bargain to be seen here yet. Of course, I'll just wait to be told that I am looking at the data wrong. If you message the data enough, I am sure you can make it look like the prices have plummeted, in which case bargains may be had.

Year Months 1-Family Condo All Sales
2009 Jan - Apr 960,000 399,500 430,500
2008 Jan - Apr 595,000 380,000 411,000
2007 Jan - Apr 918,750 429,000 482,000
2006 Jan - Apr 950,000 419,950 463,000
2005 Jan - Apr 847,500 394,000 439,000
2004 Jan - Apr 565,000 362,000 421,000

Lance: Here are Weston and Wellseley since you mention them. You are correct, sales seem to be off about 50 % in both towns. Maybe data set is too small to make meaningful comparisons between 2009 and past years, but it is the best we have. Weston is flat, Wellseley is down 30 % from 2008.

Weston:
Year Months 1-Family Condo All Sales
2009 Jan - Apr 1,050,000 1,350,000 1,197,500
2008 Jan - Apr 1,412,500 325,500 1,122,900
2007 Jan - Apr 1,142,500 422,500 902,500
2006 Jan - Apr 1,033,750 501,000 877,500
2005 Jan - Apr 1,400,000 530,000 1,300,000
2004 Jan - Apr 1,170,000 0 1,075,000
2003 Jan - Apr 1,355,000 0 1,290,000

Wellseley
Year Months 1-Family Condo All Sales
2009 Jan - Apr 945,000 453,500 741,500
2008 Jan - Apr 1,092,250 550,000 1,084,500
2007 Jan - Apr 996,250 600,000 897,500
2006 Jan - Apr 1,000,000 555,000 950,000
2005 Jan - Apr 862,500 550,000 842,000
2004 Jan - Apr 892,500 546,500 780,000
2003 Jan - Apr 745,000 425,000 687,500

#4. Sure there are more desirable places to live and people will be willing to pay more to live in a desirable area. BUT....your ability to afford to live in an area is a function of your income, interest rates and your ability to secure credit. Las Vegas and Phoenix experienced bigger booms (in percentage price gains) than Boston. Why anyone would want to live in Vegas or Phoenix is beyond me.

bv (#5): Good stuff. The short term prices are up and down like a yo-yo. This is to be expected because sales volumes in the W's is pretty light-- even in a good year. But the big picture is clear. Prices doubled since 1998 unaccompanied by any meaningful change to fundamentals. This was a recipe for the price collapse we are now seeing. Check out the data for Weston:

2009 Jan - Apr 1197500
2008 Jan - Apr 1122900
2007 Jan - Apr 902500
2006 Jan - Apr 877500
2005 Jan - Apr 1300000
2004 Jan - Apr 1075000
2003 Jan - Apr 1290000
2002 Jan - Apr 912500
2001 Jan - Apr 786217
2000 Jan - Apr 749750
1999 Jan - Apr 675000
1998 Jan - Apr 576500
1997 Jan - Apr 545000
1996 Jan - Apr 445000
1995 Jan - Apr 500000
1994 Jan - Apr 495000
1993 Jan - Apr 382250
1992 Jan - Apr 398750
1991 Jan - Apr 418500
1990 Jan - Apr 525000
1989 Jan - Apr 528500
1988 Jan - Apr 575000

A couple interesting things to note:

1) prices skyrocketed from 1999 to current (no news here)

2) prices were down almost 33% from the late 80's peak in the early 90's... compare the magnitude of that correction with the current correction and it's easy to see how we will see a 50% drop or more before this is over

Essentially on par with 2005 prices. Certainly no bargain to be seen here yet. Of course, I'll just wait to be told that I am looking at the data wrong.

An analytical tour de force, based on three whole single-family sales for the entire month of April. In a city with 72 single family homes on the market, for an eye-popping two years of inventory.

Just on Cue! Thanks, Marcus for your insight on why I am wrong, yet again!

Please enlighten us instead of merely being critical and sarcastic (though you are a master at both). Your schtick got old long ago.

Actually, his shtick is appropriate if you presented data based on a 3 sales. If this is the case, you deserve every bit of criticism and especially sarcasm. It is tantamount tantamount to the current NAR ads trying guilt and belittle you into buying.

Marcus has been very consistent in calling out people who do poor analysis or conflate emotional and financial realities of the home purchase decision.

WS...Actually, I didn't present of three sales, so I will accept your apology. That was single family houses in April only. Here are the number of sales that were looked at Jan - April. There were 192 sales according to the Warren group's data from Jan - Apr, of which only 13 were SFH. Sure, the number is way down, but I would say 192 is a decent sample size.

WS, will you call out Marcus for "poor analysis"? Or do you agree with his central premise (that prices in Cambridge and everywhere must be plummeting even if the data doesn't support this) to such an extent that you prefer to just be silent on the issue? They may fall in Cambridge, but to date they are down max 10 % and actually up from last year.

Cambridge
Year Months 1-Family Condo All Sales
2009 Jan - Apr 13 140 192
2008 Jan - Apr 18 231 301
2007 Jan - Apr 36 353 452
2006 Jan - Apr 28 236 322
2005 Jan - Apr 42 253 397
2004 Jan - Apr 48 187 352

BV,
13 sales / 4 month = 3.25.
72 for sale / 3.25 sales per month = 22 month of inventory.

When was the last time we had 22 months of inventory available and what happened to prices?

In layman's terms, supply is outstripping demand. Will demand increase faster than supply? If not, then prices will fall.

If you wish to offer me an apology, I will accept.

WS Jevons -- In mathematical terms, 192 > 3. Marcus falsely claimed that the numbers I presented were based on 3 sales. Then you told me that I "deserve[d] every bit of criticism and especially sarcasm" if that was what the data was based upon. It was not. You were wrong. He was wrong. Game over. No apology from me. I will expect none from you based on your (and others) continued unwillingness to ever disagree with anything your fellows on this site post and just live on happily knowing you were wrong.

I did not question the inventory of SFH (please quote me if I did). I did not question supply, demand, future, etc (again quote me if I did). I simply said that _prices_ in Cambridge had not plummeted yet and therefore, back to the Blog topic (a shocker on this blog. Imagine...a topic!!!), Cambridge is no bargain YET. I conceded they were down ~ 10% from highs of 2007, but up from 2008. I assume you must feel that Cambridge is a huge bargain with the price decreases you must seem to think have taken place there. Sadly the data doesn't support your thinking yet.

BV,
Cambridge is no bargain yet. OK. I think we all agree. But you couch your analysis in terms of price stability and increase y-o-y and also equated them to 2005. Sure, go ahead, but you do others a disservice when you don't tell the whole story.

Sales are way down. Cambridge inventory is way up.*

Which begs the question that I asked a post ago:

What happens when supply outstrips demand?

I was not wrong. You choose to show only one side of the story.

* I used the SFH as an example. Condos have over 14 months of inventory.

"What happens when supply outstrips demand?"

My guess (and it is only a guess before you pounce on me):

A. Prices will Fall
and B. Demand will pick up both when prices fall and as people wait longer and longer to buy a home
and C. Supply will drop as those who don't have to sell choose not to sell and as demand (B) picks up

I won't quibble over whether you were right or wrong at this point. I think it is clear that you chose to illuminate only one side of the story. I agree that sales volume is down, but you (stubbornly) refuse to admit that prices are not yet way down. Fine, but I think we should just agree to disagree.

BV, you are making a patently ridiculous argument: Cambridge housing prices are flat, even though SFH sales have essentially stopped altogether. Your problem is your insistence on cherry-picking exactly one measure that happens to be easy for you to find by point-and-clicking on the Warren website.There is nothing inherently magical about YTD median prices; it's just convenient for you and requires no effort. I and others have repeatedly posted here massive YOY drops for Cambridge, Arlington, and some other immune towns over the past months; Paper Economy has written an ongoing series focusing specifically on Arlington. Not to mention, if you actually knew the Cambridge market, you would know about properties selling far below their 2005 comps, and repeated price reductions and failed sales in the $1M+ market But you wanted to look at one convenient number, and didn't even bother to check out the monthly sales figures two clicks away.

By the way, Calculated Risk had an excellent post about median prices two days ago or so. I recommend it.

BV,
People can take away from your post that Cambridge is a relatively healthy market. Now for the rest of the story (rip Paul Harvey), there is an egregious amount of inventory out there and your answer to my question is pretty close. Excess supply lowers prices until it meets the demand price. Supply will be taken off the market. Then all bets are off . . . Will demand increase because people have money to spend, feel secure in jobs, etc? Will supply increase as more people lose their jobs and avoid foreclosure?

If you go back and read my posts, I didn't raise the issue of price. The data on price is inconclusive. That is, I cannot say if price is stable in Cambridge or not because evaluating medians for heterogeneous population samples when the population sets are not consistent is, well, dangerous.

I take financial literacy very seriously because the lack of financial literacy one of many reasons why we are in this mess.

WS. The entire housing market is very unhealthy (obviously) and prices will probably follow. Probably. But, again, we were talking about prices now. Whether Cambridge is a bargain or not now. That is what I was addressing. For that issue, it is prices, not overall health of the market. SFH houses are selling at half the rate of 2008, yet the median price of all housing increased.

I know for sure that when we see median house prices decline, I am told that it is real and indicative of the market, but when they rise, must be a twist of the data.

I know for sure that when we see median house prices decline, I am told that it is real and indicative of the market, but when they rise, must be a twist of the data.

By the way, Calculated Risk had an excellent post about median prices two days ago or so. I recommend it.