Boston Real Estate appreciation
Capital markets are one of ups and downs. And no different is the story of housing appreciation in Boston, Massachusetts. The housing price appreciation as such is not dead; but has only moved to newer real estate markets. Arizona and Florida are the new entries that are selling like hot cakes; while San Francisco and Boston, the hottest markets in the U.S at one time, are now cooling down distinctly, as are the natural order of things in the financial market.
The Office of Federal Housing Enterprise Oversight (OFHEO) issued the third quarter appreciation report which documented that there had been a decline in the national average annual appreciation rate from 14 percent last quarter to 12 percent. Metropolitan Boston, once a sizzling market now showed a sharp slowdown registering 7.2 percent annual appreciation rate which is down from the double digits that it had maintained throughout most of 2001-2004.It also identified new leading markets in house price growth i.e. Arizona and Florida.
As the real estate markets seem to be headed to a more balanced state, the appreciation winds seem to have drifted south. One reason being the net population migration to these areas. Second reason is that investors are pulling out of the cooling markets and venturing into greener pastures. Once the prices inflated in Boston, it became unaffordable to the immigrants and local households. The law of the financial jungle had to come into play as the market corrected and began to cool off; just as Florida and Arizona will do too, sometime in the future.
When metros get too pricey, buyers migrate to outlying areas, creating demand and rising prices in areas such as parts of Boston, Manhattan and San Francisco.
Bostons community setting has a population of 589,141. It has 114 neighborhoods and the types of homes are mostly small apartments, some complexes and a few single family homes. The home ownership translates to mostly renters there. The income in majority is middle income.
A recent report from Harvard University?s Joint Center for Housing Studies said that inspite of the down trend in the real estate market; houses in the Boston area will continue to be unaffordable for many working families and first-time homebuyers. The Harvard center states that the median price of a single-family home in Greater Boston has dropped 3 percent in the current slowdown, to $402,200 in 2006.At that price, a house costs 5.4 times the median household income of $74,773 for the region. The standard for affordability is 3 to 3 times the median household income.
It seems, in the current state of affairs, the housing market would not be able to come back to the point where any of the working class would be in a position to afford a place to live. And to make the dream of home-ownership for the average family a reality, the prices would have to plummet from 35 percent to 44 percent. Till then the major chunk of the population seems to be in a tough situation.
Economy.coms chief economist, Mark Zandi revealed that a weakening housing market will be a significant weight on the economies that have benefited from the real estate boom. It means fewer jobs in sectors such as construction. It short circuits equity withdrawals that supported household spending on home improvements, restaurants, and vacations.
The recurrent query in a novice market speculator?s mind would be; why did the housing market cool down? The answer lies in knowing the market truth. Markets can not stay at a peak for a long period of time. After 3-4 years of double-digit appreciation it was a natural phenomenon for it to come down. Before the appreciation had started, people used to look at houses as an investment. But once the housing market started to appreciate they started to see it as a lucrative source of income. The sellers and the buyers need to be well informed or educated with what they are dealing. Sellers need to know the price at which their house will be sold within a reasonable amount of time and not estimate prices by seeing the trend of neighborhood house sales. Similarly, buyers require education as they too were afraid of the housing bubble.
Another aspect is the role of interest rates and mortgages in the market. Rise in interest rates will lead to reduced buying power. Anyone who was not in a position to afford conventional financing and yet bought a house might face a rough time with mortgage payments.
Another side to the story is the fast growing population of immigrants. This accelerates the demand in an already limited supply of homes scenario and hence puts further pressure on prices.
David Wluka, former president of the Massachusetts Association of Realtors believes that a high housing prices are the biggest reason recent college graduates and young professionals leave Boston and relocate to the Southeast, Sun Belt, and other locations where homes costs less.
The market has softened since its peak in 2005.This window of opportunity may be used to take a step towards buying your dream home.
Firstly, as the markets are stabilizing, lower prices are working to the buyer?s advantage.
Secondly, as the sales have dropped there are a wide variety of houses to choose from.
Also, mortgage rates have reached a historic low and inventory is staying strong. Most sellers are setting reasonable prices based on this market instead of the skyrocketing rates of before.
Another factor is, real estate market has gone through price correction and hence, is returning to a normal long-term appreciation phase. Also, as investors look for greener pastures in newer unexplored locations, housing rates are bound to be competitive.
On the whole, it is near impossible to predict which way the market would go. For a prospective buyer, caution is the word in respect to their own financial ability to ride over such market bumps. Buyers and sellers have to adjust their expectations by accepting this latest market reality. During the high tide of the housing market rates, sellers were able to quote above the market value. But now their expectations will have to be in tandem with their local markets.
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