Archives
Contribute
| Massachusetts: Land Of Appreciation Or Appreciation Of Land? |
Rajiv Laroia
04/17/2007
In recent months there has been much discussion about the real estate market, about interest rates, about sub-prime loans, about foreclosures, about new housing starts or lack thereof and so on.........and why not? Real estate is an indispensable part of our lives, whether we own it or not.
BUT THE QUESTION IS:
Should we pay attention to a recent detailed study of 379 US metropolitan markets by a well-regarded Pennsylvania consulting firm, Moody's Economy.com, that says that while home prices are falling nationally, the worst may be over for Boston area homeowners? Prices may not rise any time soon, the study said, but they are probably NOT going to fall much further."
Should we believe Mark Zandi, chief economist for Moody's Economy.com, when he says that Boston "is very close to the bottom?" "If the price declines aren't over, they're pretty close to over." "PREDICTING IS TRICKY."
Should we believe Business 2.0 when it says that historically (since 1949) Boston has been one of the 5 strongest real estate markets in the country?
Should we believe the Office of Federal Housing Oversight (OFHEO) when it says that Massachusetts' house prices have increased by 635% since March, 1980 ...the highest for any state, including CA?
Should we believe the bears...those who believe that a recession maybe coming (Greenspan) or the bulls (Bernanke) who feels that the economy is not in any imminent danger of a recession?
Since 1980 we have had two major boom cycles and two plus "bust" cycles. All "down" cycles of real estate were accompanied by recession, higher unemployment, price declines and foreclosures ....the savings and loan debacle of the late 80's and early 90's was a direct result of the bursting of the real estate bubble.
The present real estate correction has been different, thus far.......it is taking place in an environment where the economy continues to grow nationally, regionally and locally, inflation remains in check, unemployment is low, job creation is on-going, consumer spending is healthy.....
Can all of this change tomorrow? It can that is why we have a nation of politicians, economists, analysts, bankers, Bernanke et el. working hard to monitor economic indicators and leverage fiscal/monetary policies and legislative tools to ensure that all can be done to keep the economy on the "right" path.......For the naysayers, the worst case scenario is the bursting of the real estate bubble (no it hasnt burst yet)......SO WHAT???
In the long run, we have seen that real estate in the Boston area continues to be a solid investment (SEE BELOW). Bubble or not, real estate will continue to increase in value long term. While experts have been debating the extent of the correction, they all agree that prices will rise over the long haul....some predict that prices will reach their 2005 peak in 2 years while others predict that it might take 7 years. Irrespective, demographics (Baby boomers), immigration, healthcare, education, finance, bio tech, world class status, largest New England city status, etc will ensure that Boston and Greater Boston areas remain an attractive investment opportunity for many.
EXAMPLE: Brookline's newest condo conversion on Beacon Street has been selling extremely well. Over 60% of the 125 condos have sold. People who bought condos in this building have already benefitted from a price increase of 5% in the past 3 months. Rental market is extremely strong in metro Boston. Both condos were rented within a few weeks of being listed on MLS.... The point is that there are many value properties out there and this is the time to buy ....or sell if your opportunity cost is high.
Below are two different statistics...Business 2.0's is an average percent for an average house in a specific state.....OFHEO's is a specific percent for a specific house in a specific state......instead of getting into the nuances of the statistics, just remember that both calculations present Massachusetts in a very strong light relative to real estate appreciation.
TOP 5 HISTORICALLY STRONGEST MARKETS IN THE COUNTRY (Business 2.0)
San Francisco: Average annual home price appreciation (1949-2006)*: 4.2%
If developers were allowed to go all out with building on San Francisco's Treasure Island, Presidio and the Marin Headlands across the Golden Gate Bridge, the price of housing would fall close to the cost of construction. But those pristine natural amenities are the product of one of the most anti-development political cultures in the country - and a perennial magnet for the highest earners.
PERCENT CHANGE IN HOUSE PRICES SINCE 1980 FOR THE STATE OF CALIFORNIA (March 31st, 1980 - March 31, 2006): 534%
Los Angeles: Average annual home price appreciation (1949-2006)*: 3.7%
Along with San Francisco, Los Angeles was the first major metro in the United States to become 'filled up' during the 1960s and 1970s because of geographic constraints and political restrictions on building. Three-quarters of new construction is now in-fill development, and much of it is high end. The gentrification is pricing out middle and lower income families, who are moving in-land.
PERCENT CHANGE IN HOUSE PRICES SINCE 1980 FOR THE STATE OF CALIFORNIA (March 31st, 1980 - March 31, 2006): 534%
Seattle: Average annual home price appreciation (1949-2006)*: 3.2%
The newest graduate to join this elite class of super-expensive cities, Seattle is the least likely to hold its place. New zoning laws approved by the city council this year lift restrictions on building heights in the downtown core, and promise to generate $100 million worth of affordable housing.
PERCENT CHANGE IN HOUSE PRICES SINCE 1980 FOR THE STATE OF WASHINGTON (March 31st, 1980 - March 31, 2006): 346%
Boston: Average annual home price appreciation (1949-2006)*: 3.0%
Boston had the strongest wage growth of these cities through the tech bust and jobless recovery. Over the next five years, it will have the highest per capita income, next to San Francisco.
PERCENT CHANGE IN HOUSE PRICES SINCE 1980 FOR THE STATE OF MASSACHUSETTS (March 31st, 1980 - March 31, 2006): 635%
New York City: Average annual home price appreciation (1949-2006)*: 3.0%
The force with which middle class households here are getting replaced by wealthier ones was reflected in the recent hysteria over the Tishman Speyer group's $5.4-billion acquisition of 110 apartment buildings in lower Manhattan, the largest real estate deal in recent history. The apartment blocks are home to thousands of rent-controlled tenants who should have been priced out of the city years ago - and fear they now will be by market rents under the new owner.
PERCENT CHANGE IN HOUSE PRICES SINCE 1980 FOR THE STATE OF NEW YORK (March 31st, 1980 - March 31, 2006): 546%
NOTE: *National average appreciation (1949-2006): 2.3 percent (Source: Business 2.0)
|
You may also access this article through our web-site http://www.lokvani.com/
