Tuesday, January 02, 2007

November Market Wrap

Last week both the Warren Group (Globe link here, Herald link here) and MAR (link here) released November market reports for Massachusetts. Plotted below are the MAR price, sales, and inventory numbers relative to historical trends.

Typically, the most informative single metric is "months supply," which indicates how long it would take to sell all inventory on the market at the current sales pace.

More analysis to follow shortly.


TheLievense said...

Thanks again for the very informative graphs!

notsofastlouie said...

Condo sales for the 'urban core market,' which here includes Boston, Cambridge, Somerville, Brookline, and Dorchester, increased from 334 condo sales in November 2005 to 426 in November 2006, a 28% increase.

This suggests that demand for condos continues to boom in the urban core market, a trend driven now by yuppies getting jobs in the city. This trend will continue as baby boomers begin to retire and downsize into city condos.

Remember, too, that condo sales represent 80%-99% of home sales in these urban markets.

For a breakdown by market of condo sales and median price for 11/06 vs. 11/05 see my posts under "Afffordability is the problem."

Source of data: Warren Group Townstats

bostonbubble said...


Can you provide references to government statistics supporting your hypothesis that baby boomers are moving into cities? This Reuters article states that while this migration is something that many in the industry have been predicting, it is in fact not materializing.

notsofastlouie said...


Thanks for the link. Baby boomers have not yet retired. The notion is that they when they do retire (beginning in the first few years for the next couple of decades), a certain percentage will downsize, and of these a certain percentage will move from family-sized suburban homes into condos in the city. My argument is that this effect would, in the future, compound the demographic shift toward young professionals without children who want condos, not single family homes.

The Reuters article you cite doesn't contravene this theory. The article says Baby Boomers haven't been buying more second homes in the city so far. The downsizing argument isn't about second homes. And baby boomers haven't even retired yet. The article misunderstands the position of smart builders like Toll Brothers, whose demographic studies and corresponding building strategies are for the next decade.

Now, when the Boomers do retire, if there is even a small incremental shift in demand from suburban SF to urban condos, the difference will be significant.

But one does not need to believe in the downsizing theory to buy the long-term viability of the urban core market. Single family housing sales have been declining for YEARS; while condo sales, especially in the urban core market, have been rising for YEARS. The correction caused by the rise in interest rates and the cooling down of speculative fever will only slow, not fundamentally alter, the trajectory toward more and more expensive prices for urban core market condos.

Let's look at the fundamentals. The particular viability of Boston as a knowledge center well-positioned for the globalizing world is not to be underestimated. San Francisco, New York, London, Tokyo, and other financial and technology centers are 3-6 times more expensive per square foot. Why is Boston cheaper?

I think it's because its city-wide rent control regime ended only in 1997, depressing rents and causing landlords to have no incentive to make capital improvements. The completion of the Big Dig will make a big difference too. The same gentrification that has caused prices in Manhattan to soar since the early 1990s is continuing to happen in central Boston now. The sustained increase in high-paying financial, professional services, and technology jobs (which are more than replacing lost blue-collar manufacturing jobs in the manufacturing areas outside the city) will increase the demand for luxury condo stock in the urban core market.

The story is about more jobs for rich people, fewer of whom have kids and more of whom want to live in the city. If there is a baby boomer retirement effect, the demand for (and hence prices of) urban condos will increase substantially over time.

notsofastlouie said...

Condo sales year-to-date (January through November) for the urban core market, as defined in my earlier posts: 5,292 vs. last year's record 5,360. Essentially the same, despite higher interest rates, higher oil prices post-Katrina, higher inventories, and despite all the bad press.

This lends further support to my theory that demand in the urban core market has held strong despite the huge decline in sales from the mid-spring through the early fall. (I argued that the decline in sales closely followed the rise in interest rates; the spike in sales in November followed the decrease in interest rates in the early fall.)

If rates stay stable next year, and job growth continues per trend, demand for housing - especially for yuppie condos in the urban core market - will grow. There is enough new supply in 2007 to meet this demand, but permitting and building activity has slowed dramatically these last six months, suggesting a shortage of housing in 2008 and 2009. (I have provided supply/demand analysis in other posts and won't repeat it here.)

That suggests that the buyer's market, at least in the city, will not last beyond the year.

notsofastlouie said...

Condo Inventory in the Urban Core Market

As of 1/12/07

Cambridge: 254
Brookline: 230
Somerville: 188

I don't have the other markets right now, but these three markets have 672 condos in inventory, vs. sales of about 2400 for the last twelve months. That's only 3.5 months of supply.

Supply will increase over the next few months, but current conditions - rising sales in these markets (vs. last year), low rates, job growth, and reducing inventory - suggest that the buyer's market will not last much longer. UNLESS these conditions change.

Sales volumes and inventory in the urban condo market do not support the bubble argument for this area.

bostonbubble said...

I'm not sure I would agree would your methodology. Comparing supply at the trough of the year (winter) when the fewest properties are on the market with the sales from the entire previous year will naturally make the inventory situation look better than it actually is. What do the numbers look like if you compare inventories and sales on a month by month basis? For example, how did inventory in December compare with sales in December for your "core" market?

Kate Louise said...

It’s an informative post. You showed some amazing stats about prices of condo per square feet. I want to buy a condo in Toronto so I want to analyze the prices of different condos here.