Is this market rigged against prudent buyers?
The housing downturn is slowly but surely on its way out here in Greater Boston.
OK, in some towns it may take years to get back to 2005/2006 prices. Yet in many of the more coveted suburbs real estate values are untouched or even higher than they were before the bubble burst.
Stretching to buy remains commonplace inside the I-495 beltway, putting more prudent buyers, who want to stay within a certain price range, at a distinct disadvantage.
One key piece of evidence is the mismatch between median home prices and family incomes. Yes, we live in one of the wealthiest metro markets in the country, but, even so, housing prices remain at multiples that all but require some amount of stretching.
While the median family income is roughly $100,000 in Middlesex County, the median house is selling for $400,000. In fact, you can ante up a hefty $430,000 and still get out bid in town like Natick, a nice town but hardly a posh suburb.
We hear a lot on the comment board of this blog from buyers who are out there looking, but trying to stay within a certain price point.
Unfortunately, it appears to be a battle between the virtuous few trying to stick to a budget and the more easily swayed majority, seeing no other choice but to pay up to get the house they want.
This can have pernicious effects, as James in Cambridge recently observed in a great comment that analyzed the impact stretchers have on prices.
Here's an excerpt:
In the same way that a culture where line-cutting is acceptable soon turns into a culture where lines don't exist, when buying a house beyond your means becomes acceptable, no buyers are better off. Sellers get richer, at the expense of extreme instability system-wide.
That said, I think it is unfair to blame any particular group for the oddities of our overpriced housing market, whether they be stretchers, sellers or even that favorite target of some folks on the comment board of this blog, Realtors.
Rather, decades of housing policy decisions in Washington have shaped the market we live in today, one that rewards borrowing more than it does saving.
While we have seen the pendulum swing a bit back in the direction of tighter credit and bigger down payments, so far it has not been a paradigm shift.
