AP poll: More avoid buying homes - Boston.com
In the article from the link above we are seeing that the general public is responding to the media stories about the "downturn." We all know that the most basic economic principle is supply and demand. So, how does this consumer sentiment apply to the Brookline housing market?
We need to first look at one of the major elements of the "boom" of the past 3-5 years. While we know single family home sales have always remained strong and will continue to drive the Brookline housing market to newer heights, condominiums are the "bread and butter" of our market. Most Brookline residents cannot afford to live in the "average" $1.3 million dollar home. It is why we see almost ten times more condos sold in Brookline each year. So, the real estate "volume" is tied up in the condo market here in Brookline. One thing that has changed since 2003 is many multi family homes that used to be rental apartments were purchased by budding "developers" who converted the apartments into condominiums. To be clear, an apartment is a unit in a building but a condo is a deeded living space within an association. So, for the five years that saw incredible growth in the housing market, these apartments started disappearing from the marketplace. Then, in 2004 three very large buildings that traditionally were rental apartment buildings converted to condominiums. First was the conversion of both 1450-1454 Beacon Street (The Warwick) and that was soon followed by 1600 Beacon Street (Washington on the Square). Later in 2004 20 Chapel Street (Longwood Towers) was also converted, removing in total more than 1000 rental apartments from the Brookline market. This sent rental supply plummeting and left renters with little choice but to use a very easy path to mortgages to buy these units as condos.
These events caused rents to increase (supply and demand) and actually most likely contributed to 2006 having a slightly weaker pricing in condo sales. Then, as we moved into the "bubble" talk of mid-2007 we saw many potential buyers start to investigate renting again. As the AP story indicates, many people see this as the "better" path in this market. The problem in Brookline is the rental inventory is still pretty dry. We cannot build any more rental apartments, so where are these renters going to go? All of a sudden the mortgage market isn't allowing the traditional "first time home buyer" to obtain financing as they could two years ago and now rents for a 2 bed apartment are hovering around $2000 a month (in many cases without parking). Enter what looks to be a brilliant stroke by big developers in The Fenway. These new buildings (Trilogy, etc...) might be where all of these people who bought the sub-$400,000 condos in Brookline in the past are going to move to.
This is something worth watching because as a result of the lending environment of the past these traditionally more "transient" homeowners will have less equity in their homes (if any) and will need to sell in the next year or two. Suddenly these homeowners might find themselves being landlords because they cannot afford to sell. The good news for them is if they can manage holding their property and renting it out, there still should be strong rental demand, but these new mega-buildings along Boylston St near Fenway Park will soften that market a little (all shiny and new). As I've been saying all along, the "core" of the Brookline homeowners should weather this market adjustment just fine. Those with 20%+ equity and strong buying power will not notice much of a change. It is this sub-$400,000 market that will most mirror what we're hearing from the rest of the country.
In the article from the link above we are seeing that the general public is responding to the media stories about the "downturn." We all know that the most basic economic principle is supply and demand. So, how does this consumer sentiment apply to the Brookline housing market?
We need to first look at one of the major elements of the "boom" of the past 3-5 years. While we know single family home sales have always remained strong and will continue to drive the Brookline housing market to newer heights, condominiums are the "bread and butter" of our market. Most Brookline residents cannot afford to live in the "average" $1.3 million dollar home. It is why we see almost ten times more condos sold in Brookline each year. So, the real estate "volume" is tied up in the condo market here in Brookline. One thing that has changed since 2003 is many multi family homes that used to be rental apartments were purchased by budding "developers" who converted the apartments into condominiums. To be clear, an apartment is a unit in a building but a condo is a deeded living space within an association. So, for the five years that saw incredible growth in the housing market, these apartments started disappearing from the marketplace. Then, in 2004 three very large buildings that traditionally were rental apartment buildings converted to condominiums. First was the conversion of both 1450-1454 Beacon Street (The Warwick) and that was soon followed by 1600 Beacon Street (Washington on the Square). Later in 2004 20 Chapel Street (Longwood Towers) was also converted, removing in total more than 1000 rental apartments from the Brookline market. This sent rental supply plummeting and left renters with little choice but to use a very easy path to mortgages to buy these units as condos.
These events caused rents to increase (supply and demand) and actually most likely contributed to 2006 having a slightly weaker pricing in condo sales. Then, as we moved into the "bubble" talk of mid-2007 we saw many potential buyers start to investigate renting again. As the AP story indicates, many people see this as the "better" path in this market. The problem in Brookline is the rental inventory is still pretty dry. We cannot build any more rental apartments, so where are these renters going to go? All of a sudden the mortgage market isn't allowing the traditional "first time home buyer" to obtain financing as they could two years ago and now rents for a 2 bed apartment are hovering around $2000 a month (in many cases without parking). Enter what looks to be a brilliant stroke by big developers in The Fenway. These new buildings (Trilogy, etc...) might be where all of these people who bought the sub-$400,000 condos in Brookline in the past are going to move to.
This is something worth watching because as a result of the lending environment of the past these traditionally more "transient" homeowners will have less equity in their homes (if any) and will need to sell in the next year or two. Suddenly these homeowners might find themselves being landlords because they cannot afford to sell. The good news for them is if they can manage holding their property and renting it out, there still should be strong rental demand, but these new mega-buildings along Boylston St near Fenway Park will soften that market a little (all shiny and new). As I've been saying all along, the "core" of the Brookline homeowners should weather this market adjustment just fine. Those with 20%+ equity and strong buying power will not notice much of a change. It is this sub-$400,000 market that will most mirror what we're hearing from the rest of the country.
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