2021 Real Estate Observations (Boston, New Bedford, Bedford: buying a home, safe neighborhood, landlord)

[yesmaybe]

^^^^

That's part of it, but it's mostly Hedge Funds, Pension Funds, etc buying up real estate because of the dollar. Hopefully they will at least rent out the properties they buy. There's no way people really think they are going to be able to work remotely long term although people in SF are so out of touch with reality maybe they are the exception.

[masssachoicetts]

Originally Posted by id77

The variable here is that incomes aren't flat across the board. Rather, the high-income people who were confined to very high COL areas have been released to move into lower COL areas nationwide, and they're driving prices up. I read an article about housing in TX where a remote worker in SF moved there and, in order to win a bidding war, actually offered to buy the seller's next house for them as part of their offer. The SF remote worker's agent stated that buying an extra house for an extra $400k, plus the original home for another $400k, was still cheaper than buying a smaller home in SF and was seen as a relative bargain for the buyer.

Imagine walking into a restaurant where a sandwich normally costs $3. It only has two sandwiches left and there's 7 people who want one. Someone from out of town walks in, and they come from a town where sandwiches normally cost $10. They see the other people offering $4 and $5 for the sandwich, think "that's still a really cheap price for a sandwich!", and offers $7. The out of town dude then texts his friends that there's some cheap sandwiches for sale and they should come get one. Another out of towner shows up and offers $7. They're still eating for $3 less than they normally do, but the locals who are used to $3 don't understand why people are willing to pay $7.

But its not just happening in lower cost areas, its everywhere. Its up from SF to NYC to Boston to Raleigh to TX to small town USA.

Im just worried when supply returns and people miss the city... what will happen though.

[simplexsimon]

Originally Posted by Lampert

So, gentrification.

Is it still gentrification if really rich people are raising the prices for less rich, but still rich people? People I know from SF moving to other parts of the country are not moving to the slums.

[id77]

Originally Posted by masssachoicetts

But its not just happening in lower cost areas, its everywhere. Its up from SF to NYC to Boston to Raleigh to TX to small town USA.

Im just worried when supply returns and people miss the city... what will happen though.

When supply was low, yes, but it was much more muted in the high COL areas than elsewhere. Back Bay and Beacon Hill have stayed more or less flat in terms of cost over the last 12 months. Redfin and Zillow will even report that the markets in these zip codes aren't hot but merely moderate. Manhattan has gone down in price a little bit. There's still some bidding wars that go significantly over asking, but those have been happening in these areas for several years now. 50 people would be waiting for an open house in these areas in 2018, and now you can walk in to some and be the only person there. That doesn't happen very often in the suburbs right now.

The supply has returned in Boston, but what I see happening now is more discerning for properties. Smaller places with 1 bathroom or no outdoor space will linger on the market, but then something that's 1,500 sqft with 2.5 baths and a roof deck flies off the shelf in a week for over asking.

The real test to this will be when most people are yanked back into the office full-time. Some will quit and look for remote work to stay outside the city, but some will also come back and dump their suburban home (or rent it out). I imagine we'll also see some who find the suburbs a little too quiet for them after all, and once the pandemic is in the rear-view mirror they'll discover they'd rather be back in the bustle of the city. I don't know how much of a correction we'll see from this, but I don't suspect it will be overly drastic. The initial shock of mixing unequal wealth buyers together has happened and I don't think they'll separate to the way it was before.

[id77]

Originally Posted by yesmaybe

^^^^

That's part of it, but it's mostly Hedge Funds, Pension Funds, etc buying up real estate because of the dollar. Hopefully they will at least rent out the properties they buy. There's no way people really think they are going to be able to work remotely long term although people in SF are so out of touch with reality maybe they are the exception.

The people in SF are also often working for the tech companies most likely to allow permanent remote. Silicon Valley is the birthplace of companies who hire chefs to cook their employees lunch, have on-site yoga and meditation for employees, or send a masseuse around to offer back massages to employees. A majority will capitulate and return to the office, but there'll be enough who either get perma-remote or will quit and hire on with a company who will should remain to keep prices elevated. Some of them kept their apartment or condo in the Bay Area and just bought up homes in a nice rural lake town or resort area that they can airbnb out when they return to SF.

[Lampert]

Originally Posted by simplexsimon

Is it still gentrification if really rich people are raising the prices for less rich, but still rich people? People I know from SF moving to other parts of the country are not moving to the slums.

I am sure technically is not but the bad effect of gentrification is putting locals out of the market, this is what is happening in some areas.

It's going to be interesting to see how long that is going to last.

[Lampert]

Originally Posted by id77

but there'll be enough who either get perma-remote or will quit and hire on with a company who will should remain to keep prices elevated.

I wonder how many can truly afford to be fully-remote from a far-away place. Your marketability is going to go down if you don't spend time with your peers socially. If you are a creative person you can fall back fast when completely isolate unless you can truly work alone, like a book-writer.

[id77]

Originally Posted by Lampert

I wonder how many can truly afford to be fully-remote from a far-away place. Your marketability is going to go down if you don't spend time with your peers socially. If you are a creative person you can fall back fast when completely isolate unless you can truly work alone, like a book-writer.

This was traditionally solved via work travel. I've been remote for years, and pre-pandemic I was traveling one week a month to offices to do exactly this. Once business travel fully resumes, I would expect this behavior to also resume. It did mean that a few remote workers who wanted live in the middle of nowhere were adding 2-3 hour travel times to an airport on top of their flight times, but I would also imagine most remote workers cognizant of this demand are smart enough to relocate somewhere that isn't too far from an airport.

[jayrandom]

Originally Posted by masssachoicetts

Well, see, this market is literally up 15-27% YOY and then an additional 20-50k over that.

When incomes stay flat but housing costs are up 40% in two years… that screams 2006-2007. I mean its just not feasible or realistic to buy.

If it's not feasible it doesn't matter if now is the top or the bottom of the future market. It's not feasible.

If it is feasible, the decision shouldn't be made based on an amateur's reading of market cycles. We all know that there will be a drop in housing prices at some point in the future. What we don't know is if the future prices are going to ever be lower than they are today. There are a ton of good reasons to think that prices will be lower in the future. If I were forced to choose I would say the same thing. I just find it important to remember that as much as I think I know, there are plenty of investors (particularly institutional investors) that seem to think real estate is a worthwhile investment, even now.

Timing the market is a bad idea for most people, even when they KNOW what is going to happen. If you are among the small sliver of people that can effectively beat the market, you should stop hanging around here and become a literal billionaire. I constantly have to remind myself that I can't do that and I shouldn't try.

[Shrewsburried]

Originally Posted by jayrandom

If it's not feasible it doesn't matter if now is the top or the bottom of the future market. It's not feasible.

If it is feasible, the decision shouldn't be made based on an amateur's reading of market cycles. We all know that there will be a drop in housing prices at some point in the future. What we don't know is if the future prices are going to ever be lower than they are today. There are a ton of good reasons to think that prices will be lower in the future. If I were forced to choose I would say the same thing. I just find it important to remember that as much as I think I know, there are plenty of investors (particularly institutional investors) that seem to think real estate is a worthwhile investment, even now.

Timing the market is a bad idea for most people, even when they KNOW what is going to happen. If you are among the small sliver of people that can effectively beat the market, you should stop hanging around here and become a literal billionaire. I constantly have to remind myself that I can't do that and I shouldn't try.

It should be noted that these institutional investors typically target rental properties, whether that be multi-fams or high value vacation properties. They're chasing revenue streams and not necessarily assuming near term appreciation.

I do agree that buyers in this market shouldn't necessarily assume a draw-back on valuations, regardless of how plausible it seems in certain markets (e.g., poor performing suburban school districts and/or poor commuter locations). This said, any home buyer in the current market should assume a long hold and have have multiple viable opportunities within the local job market to support that long a hold.

The fed has indicated this week that they have, at a minimum, two planned rate increases for 2023. This statement also assumes some easing of their liquidity injections prior to, though they didn't really state as much. It's not unreasonably to imagine this will negatively impact both equity markets and lending rates, both of which impact purchasing power within eastern MA.