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01-08-2013 12:18 PM
Over the past 9 months, everything in the Cambridge/Somerville/Arlington area seems to be selling at a premium - and immediately, including houses that have literally sat on the market for YEARS. (I'm thinking in particular of a certain junky Dwell Magazine-featured house that was horribly constructed, in a marginal neighborhood, and hideous to boot.) A 2-family in Somerville, nothing special, sold for $820K despite an asking price of $699K.
I have been looking for a long time and refuse to be ripped off, but other buyers seem to be incredibly desperate (because there's so little inventory) and are making things worse for the rest of us. Perhaps some of this is fueled by the fact that universities substantially subsidize faculty purchases. Some of the buyers justify their extreme overpayments by arguing that they'll be staying for at least 7 years so it's really okay to overpay. Right, and would those same idiots walk into a dealership and pay $100K for a $60K SUV because they'll have it for a few years? I doubt it. I think they're buying into the same stupid mindset that caused the bubbles of the pre-2008 markets (believing that real estate "always" goes up.
My question, primarily for the Redfin agents patrolling this board, is this: Do you see the ridiculous overpaying-by-buyers, and the listings whose prices go UP a week after listing, as the wave of the future? If so, I'm just going to give up and rent. (I've owned before and have the cash, but I'm not going to be a moron about this.) I do not want to hear the line that a house is "worth" what a willing buyer will pay, because willing buyers these days are insane.
01-10-2013 01:22 PM
As a proud Somerville resident and long time agent I will take a stab at answering this question, which I very much appreciate.
Cambridge has always been a very popular and insulated market not only for its name brand recognition and universities but now more than ever, the tech industry that has exploded there in the past decade. There is no coincidence that Microsoft, Amazon and Google all have large and growing presences in Cambridge, not to mention the numerous biotech and technology startups and suppliers that have cropped up. Along with these explosions have come a group of well paid and highly motivated workers who want to live within easy commuting distance to their jobs. Above that is the fact that Cambridge and Somerville are highly desirable communities with lots of involvement, initiatives and culture that very much appeal to the buyers who seek it out. Lots of people don’t want to live anywhere else Cambridge/Somerville as they are highly unique. It is not such much that the buyers are crazy but that they are intent on living close to where they work and, here’s the key, have the money to pay to live there. Is Cambridge becoming Silicon Valley is the real question and the answer is quickly becoming yes.
Then there is the simple issue of supply. Take a quick look at the recent sales and listing charts (specifically at the number of homes for sale and number of listings sold) for Cambridge and you can quickly identify that supply has not kept up with demand, at all. There is a real shortage of available properties and this will by definition create upward pressure on prices. If you look at the number of houses and condos available in May of 2011 (the peak) you will see about 420 units for sale and one year later that number was 220 and what didn’t change was the number of sales and buyers, those went up.
So where does that leave somebody who wants to live there? In the uncomfortable position of having to compete with well paid, motivated buyers as well as developers and investors for a shrinking number of available properties. However, the good news might be that the industries, communities and growth potential for Cambridge/Somerville is not likely to change or decrease anytime soon so, it is perhaps a safer buy with those rising prices. The unfortunate consequence for those who aren’t willing to pay those prices and go to those lengths is to consider alternate communities but again, ones with those same attributes of location, culture and stability are very rare. In fact I am hard pressed to come up with great alternatives but would consider Jamaica Plain and perhaps Watertown but needless to say they are not Cambridge/Somerville…
I hope that sheds some light and thank you for bringing it up as it is something we talk about around here A LOT.
01-10-2013 01:23 PM - edited 01-10-2013 01:23 PM
I think in part its due to the extremely low interest rates and the demand being higher than the available inventory, and in part its due to the belief that the real estate market finally bottomed out and has nowhere to go but up. I saw the "Dwell" house too. It was certainly a challenge to average sensibilities (including mine), but remember that Cambridge is full of alternative culture, thinking, architecture etc. It also has a BOOMING tech culture fueled by high paying international businesses. These folks want the Cambridge area experience with all its intellect/universities, art, community initiatives, eco-conscience, etc. Its hard to point to a location in New England with a mix of this kind other than Cambridge and therefore it has been fueled by a somewhat unique demand for living space that does sometimes seem beyond the bounds. . .but then again Cambridge has had this character for a very long time.
01-16-2013 09:48 AM
I have a question from the other end of the spectrum. I currently live in Newton and was thinking of investing in a condo in Boston / Cambridge area. My key focus is on location / rental yield etc. I have seen that reasonably priced apartments do not last more than 2-3 days, and that's as it should be.
However, in looking at the North Point Cambridge area, I see listings come and sit for days, taken off, relisted and so on. Is it due to over-pricing, or is it due to upcoming construction? The area seems like a good entry point for future growth, but the condos are not moving. Any guidance / feedback would be much appreciated.
01-30-2013 04:58 PM
I lived in Cambridge for several years... around 2007-2009 I was looking for my first purcahse and was really hoping to get a multi-family in the area as a home and investment. I consistently found that the numbers for multi-families did not "make sense" ... even with 20% down (no small feat when considering prices on places I was looking at were in the $700K-$1.2M range) the potential rents simply did not jive with the required monthly obligations--let alone when you started to factor all the other costs and risks involved with ownership and being a landlord.
I think that Alex's response is typical of a Realtor, but also honest and accurate--
The area is hot, people want to live there... People who have money would rather own their unit and be able to turn it into the chic place they want... These people care more about living where they want, and how they want, then whether the purchase is a sound investment or not. It's a classic example of people viewing the purchase as either a status symbol, or at least a "home", vs an investment. They don't care if they make or lose money, they want to live their lives.
I personally could not bear the thought of having a monthly payment for my own unit that would be about 50-100% premium over what a similar rental would run, all while my 20% capital is tied up in a non-guaranteed asset, and I had the risks, costs and headaches of being an owner and a landlord. The only way I could handle that is if I knew that I could leave the building at LEAST be solidly cashflow neutral, otherwise where is the payback for all the work and stress?
In the end my decision was made for me based on the home vs. investment factor--I needed a home to start a family and Cambridge did not make sense to my fiance or I, so I bought a SFH in a suburb... now, 5 or so years later, the marriage didn't happen and I find myself living alone "in the burbs" I question my sanity, perhaps it would have been more sane to buy an overpriced place in Cambridge and at least be happy with where I lived
02-23-2013 06:57 AM
I have owned a lot of real estate in cities, towns, etc., and like every other city, it can't just be in Cambridge, it has to be in a desirable area of Cambridge, to be a good investment. I have seen the North Cambridge area develop in value, but slowly. It took 30 years to gentrify Upland and another 10 years for Walden. However, most areas of Cambridge are still great to live in because of the people, the businesses, the walkability, and our public transportation. You may not get as much property appreciation, but you will enjoy living there.
This is not a new issue. You either live in a name location and suffer the mediocrity of what you get for the price or you move to the burbs and suffer from the lack of eclectic, interesting people, places and things. I do think Arlington is a middle ground and there are still some good prices on real estate. Always look at properties with real fireplaces - that seems to be a mark of older style, quality building (not gas fireplaces). Just my opinion, of course.
04-11-2013 01:25 PM - edited 04-11-2013 01:32 PM
Your observations - as well as the observations of those who have replied above - seem spot on. Reading all of the replies, and taking a look through the listings for 02140 and seeing that every single place under 500k that came on the market this past week is already under agreement, I feel like we dodged a bullet, having purchased at the very beginning of LAST spring's market. We thought it was bad that we ended up paying nominally above asking, in competition with one other buyer (we got our offer in BEFORE the open house - two more offers, in addition to the one we were competing against, came in immediately after).
If we were looking this spring instead, we would almost certainly have given up.
For what it's worth, we fall in the demographic that others above have described: one in tech, the other in education, and our top priority was to end up within a 10 minute walk of the T and be able to walk everywhere other than work. Given that our rent went up every year we lived in the area, and interest rates were low, by the time we bought, our rent was far higher than our mortgage payment is, even taking into account taxes, condo fee, etc. So people may be doing that calculation in order to figure out what they can offer, and that may be driving some of the over-asking offers - even if we had paid way over asking, we still would have come in under our rent, and our condo is bigger than our apartment was. Not everyone remembers to take into account down payment, lost investment over time, maintenance and repair, etc, and that may be driving up people's offers as well.