AP poll: More avoid buying homes.

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.

New Condos near Coolidge Corner

The TAB did a short piece about a meeting that will be held tonight regarding the planned new condo development on Sewall Ave. For those who don't know the players involved, the developer is the same company that currently owns The Warwick at Coolidge Corner as well as two other multi-family lots in and around Coolidge Corner with planned condo/townhouse developments underway. While the Sewall Ave properties are getting the most press, they are the farthest away from actual work. Look for new townhouse developments, possibly by the end of the year, first.

What we do know about the developer is they've got a pretty consistent track record with their Brookline properties. From the 11 Atherton Rd development two years ago to many others, primarily excluding the Warwick because of its unique size and nature, this developer will most likely provide a building that fits in with the aesthetic styles of the neighborhood and helps maintain the overall property value of surrounding homes. I personally think Coolidge Corner could use some more housing, but I always hope that the housing we add comes with on-site parking and at a price point accessible to the many young professionals who desire to call Brookline home. This development will be a quick walk to the Longwood Medical Area and it would be a shame if that community couldn't be served by new property.

Lending Issues with New Condo Conversions

On Wednesday I made reference to changes within the lending industry that will not get much national media play but will be critical to North Brookline buyers. New condo conversions are any apartments buildings that are being occupied by individual owners for the first time. Typically lenders would waive their owner occupancy ratio limits for new conversions because it would be impossible for a new conversion to have any owner occupancy. For any buyer who was paying less than 20% down at closing the lenders were required only to do a "limited review" of the condominium.

From 2003-2007 properties like Cypress Lofts, Longwood Towers, The Warwick and Washington on the Square became popular with many people who did not necessarily want or have the ability to put 20% down. The appreciation rate was so steep that it made sense to put down as little as possible (in some cases $0 down) to grow your investment. With these limited reviews the first owners of a condo building (whether 4 units or 400) would get by without the viability of the overall project being questioned by the lender.

What's happening today is almost all lenders are calling for an immediate "full review" of the condominiums for any buyer who puts down less than the "standard" 20%. This will mean that everyone who buys early into the project will need to put down more money than the last buyers will to get loan approval. This also means that in some of our neighboring markets like Allston and Brighton buildings which have a high number of rented units will also be subject to these reviews. The only buildings that will be exempt are buildings in which the sale in question would put the owner occupancy at 50% or higher.

Property news as we go into the "off-season."

As we approach the busy shopping and family visiting time of year, properties like The Warwick and Washington on the Square will most likely get more aggressive in marketing their final batches of units. Last year, when I was one of the listing agents for the Warwick, the busiest week we had was the week immediately before Christmas. That Saturday morning we were able to put 4 condos under agreement. I point this out because as buyers, you should still feel comfortable putting property under agreement if it fits the quality of life you are looking for. In fact, you might just find that the seller is more willing to negotiate in these upcoming weeks than they will in early January with the prospects of the "Spring Market" around the corner.

As you go about your holiday preparations, please consider me a resource. Having represented buildings like the Warwick as well as many other properties in and around Brookline, if there is a question about something you have seen, I will do my best to answer it. I spend much of my time during the week previewing new listings (most of the time before they hit MLS) and will be more than happy to try to point you in the right direction.

New on Market?

It's Friday and before I go off and prepare for the Patriots' opener this weekend let's take a snapshot of what's "new." Why the question mark and the quotes? Well for condos there are 39 new properties in the MLS system for Brookline, 13 of which are below $450,000 which is first time home buyer territory here. Seven of the condos are in The Warwick (my former listing) and one is at Longwood Towers. Obviously these buildings are not "new" but they're units which haven't been owned before. Two of the other "new" condos have been on the market for a total of 592 days! That's almost 2 years!!!

So, how do 39 new condos to start September compare to previous years?

2006: 36 new condos (15 are below $450,000)
2005: 36 new condos (12 are below $450,000)
2004: 22 new condos (14 are below $450,000)

Ok, so what does that mean?

First, inventory was up in '05 and '06 because we were seeing the tail end of the "bubble" as the media likes to call it. Sellers were conditioned to take that last gasp chance at winning the real estate lottery. In '06 condos like The Warwick, Washington on the Square and Longwood Towers were all in full marketing swing. This year though we see the highest number of new condos. I thought The Globe said it was a bad time to sell.

Well, sellers aren't listening to the media when it comes time to list their property. Our number of new listings is up, but our overall inventory (see below) is down quite dramatically. This means people are out there buying. Sellers are getting the prices they need to get to keep the market moving and buyers are submitting offers.

The fears of supply out pacing demand are not being realized here in Brookline. The market is churning along quite nicely and as the fall progresses we'll see if the incredible year we've had to date continues.

For the record, I say this to all of my clients and will put it in print here: Every statistician who looks at trends will see 2004 and 2005 as statistical anomalies. They were so far off the charts that they should not be counted as valid reference points. If you remove them, 2006 was the best year ever for local real estate sales, and so far this year we've done even better. Why can't the media tell us this?