Current Boston Market

12 Replies

Admittedly, we are new to real estate in general. With that being said, we've been working with an agent looking for MF's for the last few weeks. Every liveable MF that comes up only lasts that day or that open house weekend. Every. Single. One. We've put offers in that are over asking, but we are easily turned down. When I look at the ARV from last year sales for comparable MF's and they are $100K less. $100K!??

It seems a lot of foreign investors/cash buyers are making the purchases. Is this normal? If so, this is a complete demoralizer for "normal" folks who are actually trying to purchase an MF to live in. There is no way to compete. 

Has anyone else noticed this trend lately?

@John and martina T. Yes, it's called a hot Sellers market.

@John and martina T. What's your Broker say to do?

yes,  way over asking price,  some condo in Dorchester over 400k, triplex over 600k, some nort Dorchester over 800k,  most of them bought and convert to condo. 

Originally posted by @John T. :

Admittedly, we are new to real estate in general. With that being said, we've been working with an agent looking for MF's for the last few weeks. Every liveable MF that comes up only lasts that day or that open house weekend. Every. Single. One. We've put offers in that are over asking, but we are easily turned down. When I look at the ARV from last year sales for comparable MF's and they are $100K less. $100K!??

It seems a lot of foreign investors/cash buyers are making the purchases. Is this normal? If so, this is a complete demoralizer for "normal" folks who are actually trying to purchase an MF to live in. There is no way to compete. 

Has anyone else noticed this trend lately?

 John,

Don't look at any metrics or any reports. Don't listen to any experts or anyone who "knows" the market. There is one thing to know: when a well known developer is gut renovating a 2 family house to sell as condos and is blowing into the roof and basement for livable space that tells you how tight things are.

John,

I too am getting frustrated as well. After my first purchase in Everett, I've saved for three years for another MF. In those three years, property value has almost doubled and the competition is crazy. The last showing I was at, there were agents face-timing clients from China showing them the rooms in the house so they can see the condition. 

Boston investors. What areas are you investing in now? Many properties on the market don't even come close to cash flowing anymore. What is the solution? Salem? Worcester? Brockton?

Things might change after Sept 1.  Not by alot, but Boston is crazy in that a lot of leases are Sept 1,  real estate has seasonal cycles as well as the business cycle.  Buying may not be influenced by the rental cycle but with rents so  high few renters could buy and risk having to pay rent and mortgage.

 I have an apartment in Davis Square...one of the hippest areas, on the red line, close to Tufts and my 2 bed unit rents for 2550...no takers (I am leaving Sept 1).  Garage parking.   But an 800 sq ft unit in a nearby triple-decker would go for at least 450k without parking and re taxes are fairly high.  Rent is cheaper.

I guess I am saying stick in there for a little longer...but there are a lot of Chinese in China.  Boston jobs are flattish and there has been a big price  runup...probably cant last forever.  If Dorchester is gentrifying it may be a different market (not familiar with area).  600k for a triplex sounds like it would cashflow in Boston but location, location, location.  When looking at past prices remember inflation historically has raised housing about 4% per year...400...416...433...adds up quickly and is just a starting point.

The housing crunch in Boston is feeding a frenzy like never before.  In times like these, do what most of the population does--move further from the city.  Like a previous post mentioned, a place like Salem is up and coming, has a UMass campus, on the commuter line, and is projected to continue to be in high demand.  The market is competitive on the North Shore but not nearly as bad as in the city.  

Specifically in Boston and the Greater Boston suburbs the foreign buyers do skew things a bit especially in the multifamily space.

In general for SFR prices have actually been pretty flat, and actually have gone down in plenty of places (more so as you get farther from the city). But TV and Twitter still say it is hot so it must be...

Prices are still climbing in most major metros, but not Boston, and most people overestimate the level of appreciation seen here: http://www.zillow.com/blog/housing-confidence-inde...

More towns, even very good ones, are seeing more places dropping the price to actually sell and more closings falling through as buyers realize that maybe paying $50K over asking while waiving all contingencies is well kind of a dumb thing to do: http://www.boston.com/real-estate/news/2015/07/28/...

Foreclosures are up have and petitions have been going up by leaps and bounds for 16 months now.  As that inventory starts working through the system that will effect the supply and demand curve a lot:  http://masshomesale.com/2015/08/12/foreclosure-act...

Going back to the foreign buyers while we don't see the kind of action that you seem to see in places like the San Francisco Bay Area we do see a lot of Chinese especially hit the multis.  Makes sense that they want a safe place to park the money and if they have a million bucks why not buy a blue chip multi as long as they are okay with like 3-5% return on the money.  Looking at what has been going on in the Chinese stock market and now what the government is doing to the Yuan I can see the rational.

To Donald's point about developers buying up small multis for condo conversions, and do anything they can to add units if possible, or enlarge them if they can't, to get as much stuff out there while there is the irrational exuberance.  Unlike the stock market there aren't many easy ways for the smart money to cash in on real estate bubbles.  One of the few ways to do it is to build new housing and try to sell it before the bubble bursts: http://www.nytimes.com/2015/07/26/upshot/the-housi...

If you dig in deeper than listening to mainstream media and Realtors saying the market is so hot and you better do anything you can to get in now before you get priced out, you see that is true right now, maybe, but is nonsensical looking in the future.  All data is pointing to a new unsustainable bubble reflation.  

Remember we were around 2 years ahead of the general national RE crash last decade and seems like we are ahead of the curve again.  It won't be as bad as last time since you don't have all that crazy mortgage stuff going on, but there will be a market correction sooner rather than later.  If you buy for cash flow or long term appreciation (at least 10+ years) then it's always fine to buy.  If you are getting caught in the hype and are buying with little down and negative cash flow hoping to refi in 1-3 years once you have a bunch of equity and rents go up to cover the payment... well then best to sit on the sidelines I'd say.  Talk to all the people that worked well for around here in 2005... 

@Shaun Reilly I agree that Boston tends to be ahead of the curve in regards to bubble forming, popping, and recovering. MA felt the bubble bursting in 2005, in Vegas we didn't feel the bursting until 2007-2008. I don't see an immediate threat of a bubble popping but considering prices are already high and since the bidding wars are causing prices to shoot up further it is only a matter of time until there is a correction needed.

Just curious what the incomes look like in Boston vs going property prices. What percentage of income is the average home owner paying for their home? Investors can only drive so much of the market demand. There needs to be affordable homes for the people that work and live in the city or demand will drop and so will prices.

I wouldn't be surprised if Boston was one of the first in the country to feel the correction again in up coming years.

Originally posted by @Robert Adams :

@Shaun Reilly I agree that Boston tends to be ahead of the curve in regards to bubble forming, popping, and recovering. MA felt the bubble bursting in 2005, in Vegas we didn't feel the bursting until 2007-2008. I don't see an immediate threat of a bubble popping but considering prices are already high and since the bidding wars are causing prices to shoot up further it is only a matter of time until there is a correction needed.

Just curious what the incomes look like in Boston vs going property prices. What percentage of income is the average home owner paying for their home? Investors can only drive so much of the market demand. There needs to be affordable homes for the people that work and live in the city or demand will drop and so will prices.

I wouldn't be surprised if Boston was one of the first in the country to feel the correction again in up coming years.

Exactly Robert.  Most of the country started to have issues in that time frame you had for Vegas.  But here things were already plunging by the end of 2005.  I was green back then and actually bought a bunch of the places at the "bottom of the market" in 2007 (so just when things got real every place else) since we were already that far along.

Note my advice about having a plan to cash in equity in the next few years.  Luckily I was looking for cash flow (which as a first time landlord didn't calculate right...) and 5-10 years minimum for appreciation so I only lost options to do anything other than stay the course but I wasn't totally screwed like I would have if I took on negative cash flow voluntarily banking on 10%+ appreciation every year...

Sorry bit of a tangent there.

I think that things are much closer to the market correction than years here.  For example if you look at that Zillow article I linked to the basic premise is that many people in major metro areas actually underestimated the amount of value their houses gained in the last year.  Boston was a notable exception where prices were actually flat so the people that said it was flat/little growth here were actually right but also showing that like 64% of people over estimated the annual growth.  So perception and reality are way out of whack. 

Take that with a leading indicator for trouble like foreclosure activity and things look that much mote tenuous.  While you are starting to to see a little up tick nationally after a long decline we have been going up for a while especially with petitions which have been up every month over the previous year for almost a year and a half (and not small jumps we are talking 30-100+% increases, with it being closer to 100 or more most of the time)

Not sure what the income to price ratios look like but I can say with confidence that wages have not scaled remotely close to the way prices have gone up the last couple years.  Even in 2011-12 most of Greater Boston was still fairly unaffordable for most blue collar workers, so those guys have no shot now. 

I agree Shaun,

I'm new to real estate investments but I have been looking to purchase a 2or3 unit MF in the Quincy/braintree area for the past 8-months and the numbers just don't make sense. Everything is over 500K at a minimum and most places need a good amount of cash for rehabs as well. The year ROI is only 2% to 3% after all the equity required at purchase/spruce up. Additionally the cash flow is only 200-300$ after the PITI and additional costs are taken into account.

If the market is to correct its self I would be taking a big hit on the value of my home and if the cash flow is not very attractive I could be stuck in a difficult spot. Time to look further south south outside the city..

I'm looking into bridgewater (near BSU) Plymouth to see how the numbers look in that area. 

also in the Bridgewater area...following this post 

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