MA Real Estate is CRAZY (Boston, Cambridge: short sales, 2015, foreclosure)

[New Englander]

RE Prices in desirable parts of Metro Boston are definitely on an upward trajectory. However, I don't believe in the notion of they will continue to increase indefinitely. There is a lot of money both foreign (Chinese capital flight to safety) and domestic (highly paid professionals in tech, biopharma etc.), that might be scooping up properties, however when (not if) there is an economic contraction or additional capital controls by countries like China, you will find property values declining.

My recommendation, if feasible, is to bide your time. Save your dollars. Build up strong cash reserves for downpayments and other costs. The buying opportunity will present itself. I know because I saw what was going on in 2007-8. I picked up my Harvard Square condo for dirt cheap, a few multis up in the Beverly area for a bargain.

Do not be fooled by the run up in RE prices.There will be a decline in prices, even if its for a short term. You buy when the world is panicking. Credit access/flow becomes limited during these times of economic turbulence so having liquidity is key.

[bugelrex]

Originally Posted by New Englander

My recommendation, if feasible, is to bide your time. Save your dollars. Build up strong cash reserves for downpayments and other costs. The buying opportunity will present itself. I know because I saw what was going on in 2007-8. I picked up my Harvard Square condo for dirt cheap, a few multis up in the Beverly area for a bargain..

This is great technical advice and will work if you have unlimited time. In practice with kids, wife, financial planning waiting can affect life quality (eg you want your kids to establish roots in a school district)

If you have kids and find a house and location you can live for 10-15 years given todays rates, i would give it serious thought

[MikePRU]

Originally Posted by bugelrex

This is great technical advice and will work if you have unlimited time. In practice with kids, wife, financial planning waiting can affect life quality (eg you want your kids to establish roots in a school district)

If you have kids and find a house and location you can live for 10-15 years given todays rates, i would give it serious thought

Market timing is also not a very feasible plan. Just ask anyone in the financial services industry and they'll tell you the same about stocks/mutual funds. The truth is you only know where the bottom was until you're not there anymore. The same could be said for the peak.

[bjimmy24]

Originally Posted by MikePRU

Market timing is also not a very feasible plan. Just ask anyone in the financial services industry and they'll tell you the same about stocks/mutual funds. The truth is you only know where the bottom was until you're not there anymore. The same could be said for the peak.

Agreed. If your plan includes timing the market, it's not a very good plan.

[yellowstatus]

Originally Posted by bjimmy24

Agreed. If your plan includes timing the market, it's not a very good plan.

Seconded, timing is well beyond my capability. I moved to SF in 2012, and could have bought then. But prices had already increased 35% in 2 years. 5 years later, those same homes are another 90% higher. Could have made a clean $900k gain.

Moving to Cambridge, I avoided the same mistake. I see good real estate, I buy it. I dont know where it goes in 3 years, but I know where it will be in 30. The houses near Brattle street have housed the wealtiest since 1600. I have zero doubt it will be very desirable in the coming centuries.

[Shrewsburried]

Originally Posted by MikePRU

The same could be said for the peak.

One can come close though. It's quite obvious ... based on demographics, interest rate trends, and income growth trends ... that we're either at or nearing peak housing nationally in the near term. Coastal/urban concentration will likely fuel the Boston burn longer, but the reality is we're currently at or approaching peak demand due to prime-age millenials entering the market and a healthy swath of boomers still alive and needing housing. Home prices should begin to plateau through 2024, at which point a second wave of younger millenials and older gen Z hit prime age and enter the SFH/condo market.

The short: I wouldn't touch central/eastern MA non-income RE unless I planned to hold long - 8+ years. Assuming the U.S. maintains economic relevance and there isn't some mass die off, the gen X, millenial (gen y) and gen Z population should exacerbate the ongoing inventory shortage based purely on volume, but again, this likely won't ramp until 2024 or later.

[timberline742]

8 is long for buying a house? I would think that would be a minimum at best.

[Shrewsburried]

Originally Posted by timberline742

8 is long for buying a house? I would think that would be a minimum at best.

It should be, but I'm seeing the return 'dumb money'. I've had a few coworkers/friends assume they can buy now and cash out ahead in 2-3 years when they need/want to transition job markets. I just don't see that working out well given demographics and rising rates. The 'smart money' in my social sphere seems to be cashing out of RE assets and trying to tide over this moment of inflation with various financial tools/investments - this tells me they believe the RE market is high/peak and they're trying to stay 'liquid' for a down turn. They called bottom in '09/'10, so time will tell if they timed peak.

[New Englander]

Originally Posted by bugelrex

This is great technical advice and will work if you have unlimited time. In practice with kids, wife, financial planning waiting can affect life quality (eg you want your kids to establish roots in a school district)

If you have kids and find a house and location you can live for 10-15 years given todays rates, i would give it serious thought

I fully recognize this consideration. However my main concern is that many families are stretching themselves financially thin to afford down payments, mortgage payments. During times of economic turbulence these families may find themselves in dire circumstances if one or both earners loses their job and the family is unable to pay the mortgage. Being able to have the funds for down payment + closing costs, having 6 months of mortgage payments, and being able to afford the mortgage (PITI) payments is crucial.

Otherwise, renting in the same school district may be a good alternative.

[New Englander]

Originally Posted by MikePRU

Market timing is also not a very feasible plan. Just ask anyone in the financial services industry and they'll tell you the same about stocks/mutual funds. The truth is you only know where the bottom was until you're not there anymore. The same could be said for the peak.

Real Estate is a very different investment vehicle from equities. It is a illiquid, high barrier to entry, quasi-investment. It's a quasi-investment because residential real estate should be a home/shelter first and foremost.

Market timing is not feasible? Ask anyone who brought real estate in 2008-2012 - they are sitting on a equity cushion right now. No one is calling for detecting a ceiling or floor when purchasing real estate, trends are sufficient. Right now, prices are trending upwards, this will not last.