Hey, there! Log in / Register
Housing bargains in East Boston
By adamg on Wed, 12/17/2008 - 8:30am
Anthony Giacalone reports that banks are beginning to unload foreclosed properties at reduced prices - especially if they're in need of some work:
... At 212 Chelsea Street, a bank owned brick three family is on the market for $189,900. This property sold in December 2005 for $430,000. ...
Neighborhoods:
Free tagging:
Ad:
Support Universal Hub
Help keep Universal Hub going. If you like what we're up to and want to help out, please consider a (completely non-deductible) contribution.
Comments
Heres the question of
Heres the question of week... Is it a bargain or is that what one of those houses is really worth (maybe less?) Ive always lived around the North Shore and am very familiar with the history of the housing market in the area and can tell you that prices directly to the north of Boston (Chelsea, East Boston, Revere ect) have sky rocketed (with the rest of the market, but at times at a much higher pace) since 1999. In fact even after these massive dips, even after the foreclosure process, even with inflation taken into account that house is probaly STILL selling for more then it would have a decade ago.
Lately East Boston has been a community on the rise so I expect there to be some anger at me over that comment, but the reality is historically East Boston has always been a working class part of the city and that is the baseline. While slight increases are to be expected due to gentrification $430,000 for a three family on Chelsea Street was just outrageous.
It's worth what someone is willing to pay for it
Housing is a market, just like stocks, pork bellies, and scrap metal. The price of a given house fluctuates depending on a myriad of factors. The bottom line is that it's worth what someone is willing to pay. So yes, maybe that house in Eastie was worth $430K a few years ago - things change.
The reason why its in
The reason why its in foreclosure is because its real value was never 430K because the people renting it from the person were not willing to pay the prices needed to maintain that mortgage. It was also most likely bought by somebody using a mortgage scheme that involved adjustable rates and/or interest only for x number of years. That was a fake price propped up by fake money that never existed in the first place.
Everyone keeps talking about the money we "lost" in this new economy. We didnt lose that money, it never existed.
It was worth it to somebody
The house was worth $430K to somebody, for whatever reason, and that's all that counts. Sure, you may not have been willing to pay that much, and I sure wouldn't have, but I wouldn't live in Eastie anyway. But, that's what a market is - some people willing to pay $X for something, and others willing to sell at $X.
I remember hearing a saying about the stock market once. When a stock trade between two parties occurs at $X, both parties feel they got a good deal. Same with the house.
I absolutely agree with that.
Truism
It's a truism that something is worth what someone is willing to pay for it. It's also irrelevant to the point of the comment.
The point of the comment was to reflect on the likely range of future values, based on past values. The question of whether it is a bargain or not has to do with what will happen to the price in the future.
East Boston has seen a stunning rise in values since 1999. I bought my first property in Boston in 1999, and I looked at some spots in East Boston then. I decided they were overpriced then, and in subsequent years the rise has seemed ridiculous to me. I am not surprised at the fall.
I decided not to buy in East Boston or Chelsea because - let's face it - who wants to live over there? I live in Boston. I can ride my bike downtown. I can go to multiple neighborhoods with ease. My school zone only covers one land mass. I'm not isolated at the end of an expensive bridge or tunnel. East Boston is not and will never be the Brooklyn of Boston; it's the Jersey City.
The other thing that struck me about East Boston is that (like Jersey City) many of the properties are truly junky. I have a park across the street from my house, not a chop shop. The properties I looked at in 1999 looked mostly like tear-downs. I'm sure there are nice properties there, as there are in Jersey City, but that's not what I saw.
The big run-up in Boston real estate brought East Boston with it. But East Boston never stopped being a marginal neighborhood, for many reasons that aren't going away, including isolation, ghettoes, and crappy housing stock. The large amount of turnover associated with the runup has left its prices unstable as foreclosures rise.
The question of whether a dingy little shed across the street from a chop shop is a bargain at 89K has a lot to do with whether you'd be able to get your money back in a few years, because who would really want to live there forever?
Jersey City, etc.
The Jersey City waterfront has gotten pretty built up lately with office and hotel development. But I wonder, could East Boston ever be Hoboken?
So you're saying
Jersey City is no longer the East Boston of New York? Still kinda looks like East Boston to me. But I am no expert.
Whereas the Jersey City I'm thinking of ...
... looks more like this.
I agree with your overall
I agree with your overall assesment but dont agree with the tone. East Boston/Chelsea/Revere/Everett have their nice spots and not so nice spots. They have their own local flare and their own communities. Yes they are also a little dingy at times, but everything everywhere can not be perfect. I agree with you that if you intention is to be part of Boston proper then its a really bad way to go, but if your not rolling in extra cash and need a place to live and are willing to get involved in the local communities then they are nice places to be (certain areas of course.)
Either way, you are right, this lot is useless unless your a very poor person who needs a place to live or you plan on buying the whole block. Im assuming with the size of the lot it would be almost impossible to build anything new on the lot.
The future is already reflected in the price
The price of a commodity in a market already reflects its future value. If the buyer of that $430K house thought that it was going to be worth $200K in 3 years, do you think they would have bought it? Don't think so. We're talking about the future here, which nobody really knows anything about. We all have our guesses, and our thoughts of the future affect how much we're willing to pay for a house. Apparently, the buyer thought $430K was a fair price given his thoughts about the future.
OK, you don't want to live there, so that affects how much you're willing to pay for a given house. But, there are other people in the world making up the market, and apparently someone thought $430K was a fair price.
For every house sold (or any other financial transaction), there are those who think it's a good deal and those who don't. Let's look at the late 90's, when the market was going whacko. People we're offering more than asking price for houses. Every time a house sold, people would say "That's way too much for that house, I'd never pay that much." And two years later, the buyer would sell it for a 20% gain. So, who knows?
Another thing that happens, and is probably what this Eastie house got caught up in, is that when the market gets hot, the speculators come in. People start buying properties purely for short-term investments. Examples:
1. they "flip" houses, buying them, spruce them up just enough to sell them again in a matter of months
2. buying properties not even built yet with no intention of ever moving in. They'll sell it when it finally gets built, or even before.
Bottom line: For whatever reason, that Eastie house sold for $430K and that is it's market value at that instant.
Bad reflection
Was it worth it? The owner took a bath on it and it got foreclosed. It's selling for less than half the assessed value. Ergo: it was not really worth it.
What is reflected in the current value is not the atual future value, but the imagined future value. If your imagination is wacky, yes, you may end up paying more than a property is really worth. That's what happened here.
As you say, the speculators complicate matters. They may pay more than even they think the property is worth, just on the bet that there's a greater fool out there to sell it to. Then someone gets stuck holding the hot potato.
The instantaneous value to one person isn't "the market"
I don't agree that just because a single transaction cleared at a certain level, that it informs us about "the market" generally, though it was interesting to watch the meltdown.
Also the in-market trading price of an item (every house is unique - a house is not a "commodity" in economic terms) does not reflect "its future value" but its "estimated future value" in the eyes of the buyer.
I think it is accurate to say that the $430K buyer's belief about the present and future value of the house, in that market, was mistaken. But that's about all we can learn from this. That house might be "worth" a lot more or a lot less to various buyers - for example, to someone who grew up there, or to an investor who wants to buy low and rent it and always show positive cashflow.
I'd say that the "value" of the house can still be calculated coldly and less personally than that, and that's how an investor should do it.
What that last wave of flippers completely missed was that it was never going to be possible for housing prices to double again. This method of investing - coming in late and tapping yourself out, assuming that someone else will come up with the scratch to buy from you - is called the "greater fool theory" of investing, and it never works out.
Never?
Never say never! Sure, it's possible for house prices to double again, why not?
LOL
you're kidding, right?
incomes would have had to more than double to support the LAST doubling, they didn't. you see what happened.
sure, at some future date, the price of a house in any place on earth will be 2x what it is today, just like houses cost more than they did 40 years ago. but over those long timeframes, the price in adjusted dollars is not shifting so dramatically as to "double" the actual value of the house vs the value of the money that pays for it... when the doubling happens over five or ten years, then something is obviously wrong.
I'm guessing you would consider it a win if prices increased a hundredfold due to hyperinflation?
Just the never part
I was responding to the Never part:
"...it was never going to be possible for housing prices to double again."
I just don't think you can say that house prices will never double again. The economy tends to move in cycles and it would not surprise me at all if in the future there was another similar housing price boom like the one that we recently experienced.
I certainly didn't say anything about "A win" - how in the world did you get that & the hundredfold thing out of what I said?
And, I don't really get your calculations about actual value - the actual value is whatever someone (the market) is willing to pay.
not so much
why, back where i come from, "never" as i used it would have meant "never, not possible, nope, not in the time frame available to the buyer, to keep himself whole and recoup what he thinks he's going to recoup, not a way in hell"
so i apologise for not elaborating, but that was what i meant. never, in the "the necessary future scenario could NEVER have played out as required". i stand by that, and I was saying so "way back when" as well, when nobody wanted to hear it since prices were going to increase forever. Prices cannot increase forever. That was the whole point... and another doubling atop the already-doubled prices would have been about the same as "an increase forever" because then prices would have to have reached some level so far above people's heads that you'd need a 100 year mortgage to pay for a 1bed, and that ain't gonna happen.
... or in other words, the "investment" that buyer thought he was getting into was an illusion seen only by him, maybe with some help from others (realtors, mortgage brokers) coloring in the details to make it ever more real-like (but not real).
one player's actions do not define "the market". if i pay $200 for a used ipod mini on ebay, where the going price is typically around $49, i haven't changed "the market". I've merely overpaid.
The problem here is semantic, i guess, and a mixing of three distinct issues around "price"
1. the last sale prices of a discrete good ("a particular house")
2. "the market value of homes in East Boston" which cannot be learned by looking at one sale
3. "what the market will bear" which goes to the issue of whether there could be a next buyer to pay that price for the house, and which obviously changes over time
sure, there can be more tulip crazes, and there will be as soon as this one is forgotten. We've gone through Internet, Biotech, Oil, and Housing. Your guess is as good as mine about what's next.
Round and round
Do I think the house down the street which just sold from $169,000 could double in price in 10 years? Yes.
Is is worth double? I don't know - I still think that it's worth whatever someone pays for it. Sure, I saw prices that I thought were too high, and thought the house wasn't worth the price, and, yet, someone did think it was & paid the price.
Prices don't go up forever, once in awhile they drop, but then they go up again.
I suppose we could go round & round until the prices double. Guess we can check back in 10 years or so & see what happened.
Two different nevers
Seems like you're talking about two different nevers. I agree with both of you.
Will there be a case in the next few decades where housing prices in Boston double? I wouldn't say never. I expect it's likely.
If the value of a house just doubled, should you expect it to double again? I'd say never.
I sold a condo in 2004 for 260% of what I paid for it in 1999. If those people think it's going to double in the next decade, they'll be wrong. It's already worth less than they paid for it. Of course, the price in 1999 was less than the previous owners paid for it in 1987. It'll go down some more, and then eventually it'll double that.
thanks
thanks for clarifying that. i agree with both of us. the never i was talking about (I thought it was clear from the examples) was one that looked from the perspective of the churny frothy period of bubble, which lasted several years. i was talking about people who buy into an already-overpriced market, expecting that the upticking will necessarily go on forever, making a profitable cash-out likely in a time frame that is useful to them. the point again is that such a thing is very obviously simply not possible when prices are already running well ahead of buyers' ability to pay.
that's all. i guess i've said that about ten different ways now.
Maybe not such a bargain
With incresing air traffic, the proposed move of the South Boston heliport to logan, increased tolls, stalled or cancelled waterfront projects and the City's general neglect of our neighborhood the market it letting us know what it thinks of our prospects.