Market-rate projects battle for buyers in Dorchester

Price/rent and price/income ratios were absurdly high at the height of the boom. I suppose it's almost understandable for individual homeowners to not understand housing market economics, but I have a hard time believing that investors and developers didn't see the bubble. Rather, i'd bet they saw the bubble, but thought there was still time to get on and ride it to the top.

What were those $300k triple-decker buyers planning to do? Prices were so high that people who wanted to live in the neighborhood couldn't afford to buy, and people who could afford to buy didn't want to live in the neighborhood. Price/rent ratios were so high that the units couldn't possibly be a profitable rental. Which means that the fundamental strategy driving the purchases was either, a) "I'll take a monthly loss on this property until I can sell it for a profit," or b) "I'll renovate the unit and sell it to someone with strategy (a)." Strategy (a) is a pure bubble mentality, and strategy (b) is an offshoot of (a).

And Scott, it would be nice to include a reminder of your affiliation with the Warren Group when you quote their reports in this blog.

could they have foreseen it? sure. Lots of us did. And we aren't unique.

But to say there are "clearly growing signs" of a turnaround takes NAR a bit too seriously. How many times has bottom been called so far?

Granted, some of this data is a little bit better. But to call it clear is a vast overstatement. If we look at what percentage of sales are affected by the housing tax credity (estimates of 10%) and that gets stopped in November (Actually deals pretty much need to be made now to qualify), what will happen?

By traditional metrics, a lot of real estate remains overpriced. Whatever NAR says.

I live next to DNA Lofts and their rock bottom price of $150,000 gets you around 550 sq feet. Thats no bargain! Show me 850 sq feet for $150,000 and you might have some buyers.

Let's be honest. Those projects are money losers.

The real estate investment business is full of examples of "knife catching" gone wrong. The scenario often resembles following: 'A' develops a property during a boom, planning to sell to 'B' for a profit. However, a crash hits before 'A' can get out, so the sale to 'B' results 'A' losing his shirt. 'B' therefore thinks he got bargain since he bought from a distressed seller at a discount relative to the peak. But inevitably, the market crashes even more and 'B' also loses his shirt when he is forced to sell to 'C'. However, 'C' buys at the real market bottom and does very well.

A = developers
B = speculators/flippers/ignorant buyers who buy into market hype
C = value investors/shrewd buyers

The so-called "growing signs of market turnaround" is a bunch of noise generated by 'A' people selling to 'B' people. There will be another big leg down. And the 'B' people will get clobbered.

I wonder how that newlywed couple that appeared in a story here a few months ago who bought a condo in Mattapan for $300K-something feels about all this.
In reference to Lance's post--they sounded then, and especially now, like people in the "B" group.
Armed with a lot of information I didn't know previously before we wisely backed away from a property about a year ago--from this blog and other sources--hopefully my wife and I will fall into the shrewd buyer sub-category of group "C" at some point in the future if prices ever return to historical norms . . .

"Could these developers have seen the foreclosure tidal wave coming?

That’s a hard call to make given the whole country seems to have been caught off guard by the depth of the housing market disaster."

I think it was a relatively easy call. If one did even a minimal amount of due diligence and read say Banker & Tradesman during say 2001-2006, one would have clearly seen a huge number of purchase mortgages closed with the likes of the now defunct New Century, Ameriquest, Fremont, (all clearly, readily identifiable sub-prime lenders) etc. in these areas. Let's face it, these people were not getting loans from private banking outfits.
Beyond that, ANYBODY with any kind of market knowledge would know that liberal (stupid) credit policies lead to bad lending and asset bubbles, it has happened many, many times before.

I think it is also a relatively easy call now to say that housing is headed much lower in value. High unemployment, tapped out consumers, stimulus and hype pulling out all the stops to get people to buy, none of these are characteristics for a stable, much less improving market. We haven't seen anything yet. The 8k "cash for shacks program" will become
larger and permanent. If Maobama wants to win in 3 years, he'll need to do everything he can to prop up this crashing asset class.

One final observation. It seems there is a huge surge in both the media and the NAR to latch onto any remotely positive news and to ride it for all its worth. Misleading, half-truth headlines, which require the reader to actually finish the article to see through the smoke and mirrors to get at least some of the facts.

Speaking purely selfishly, I'm delighted with the Carruth. I live in the neighborhood and there is some question whether Ashmont Station would have been rebuilt without Trinity's involvement in the project. The station construction is almost over (can't wait) and it looks really nice. They could use a few more retail tenants (along with selling their condos), but it's a vast improvement over what was there. I'm just glad the deal got done before the bottom fell out of the market.

Off topic, but interesting non-the-less and just goes to show how CRAZY things are these days:

On 8/25 the NYSE volume was roughly 5.8 billion shares. Of that roughly 37% of the volume was is in 4 stocks: Citibank, Fannie Mae, Freddie Mac, and Bank of America. So here we have three institutions (Citi, Fannie and Freddie) that are insolvent and should have gone under and a fourth (BofA) that probably isn't in much better shape making up 37% of all volume and these shares represent only 0.13% of all shares traded!

This type of volume disconnect has apparently been going on quite often recently. Gotta love program trading.

Show of hands, who has faith in the 50% rally since March?

(In other news: AIG is up about 27% today as of this post)

I thought the DNA lofts were very nice, but overpriced last year. I watched the prices go down, but then realized that the condo fees for the bigger units were around $500/month. So sure, your mortgage is lower, but you're not getting away from that fee.

lou, totally agree on the stock market - its another bubble. Basically fueled off the money the Fed poured into the banking sector.

And the idiots buying insolvent stocks like AIG, Freddie, and Fannie, is just simply amazing. Goes to show whats happening, as no one with the slightest clue would buy any of those.

300k for a condo in Dorchester?? COME ON! We are seeing the cycle again. Developers bought run down triple deckers, converted them to condos and they all went into foreclosure. Now the remaining have been converted back to triple deckers and are being sold as rental property.

Six months or so ago, the developers swooped in on the foreclosures on the triple deckers, at arond 200k each and put some 50k in, and are now trying to sell them around 400k for the same triple deckers. Anybody who buys these, is a fool with a capital F.

Dorchester and Mattapan are rental markets and that's what they will ever be. Also, the rents there are mainly inflated by Section 8. The market value rents will be MUCH lower and buying them even for investment doesnt make any sense..

The real estate market tanked, because it was being driven by speculators and developers and NOT driven by the housing need. Until regular buyers stop getting sucked into this game, there is a danger that there might be another bubble in a short time like Schiller said recently.