Positive news continues suggest that we are indeed through the worst of the Great Recession which began in December of 2007. It is hard to believe that it’s been so long! On Friday the government reported that the economy grew for the third straight quarter in a row. Gross domestic product (GDP) grew 3.2% in Q1 2010. If we look back one year to Q1 2009 GDP had fallen a staggering 6.4%. What a difference a year makes!Nationally home prices have started to inch up along with the economy. In February of this year, for the first time since December 2006,the S&P/Case-Shiller 20-city index posted a year-over-year gain. Compared to February of 2009 same home sale prices rose 1.6%. 9 of the 20 homes in the index showed gains, with Boston (defined as the Greater Boston Metropolitan Area from the New Hampshire border to Braintree) posting a gain of 1.8%.

So how have we fared in the city of Boston itself? Considering that we are comparing the current Q1 2010 to the worst quarter of the recession a year ago, quite well indeed. Boston™s housing market often leads the nation in both downturn and recovery.  We were one of the first to peak in 2005 and now appear to be leading the way on the road to recovery in 2010. Although unemployment and foreclosure rates remain stubbornly high, we are making progress on the road to recovery.

Let™s take a look at the data. We start foremost with sales activity comparing Q1 of 2009 to that of 2010.  Sales volume in most of Boston™s neighborhoods are up dramatically. Citywide, there were more than 41% more sales!

While frustrating for buyers, low inventory levels continue to support a balance between supply and demand.  Although the economy is recovering, given the uncertainty in the jobs market, many people have postponed trading up. As a result, inventory levels continue to decline. Citywide, available inventory is down about 10%.

Many of Boston™s neighborhoods realized modest price appreciation in Q1 2010.  While South Boston saw a decrease caused by foreclosures and short sales, and the Waterfront suffered in the comparison this quarter because there were not the same level of sales of new luxury product this past quarter compared to a year ago, Citywide the average sale price increased more than 19%.

Looking at the median, rather than the average price reveals that prices have held up rather well. Median price is the mathematical point where ½ of the sales data falls above and ½ of the data falls below. Again, note the exception of the Waterfront for the reason stated above. Citywide the median price rose over 13%.

The average price paid per square foot rose across the board. Citywide the average price paid per square foot rose 10%.

Average days on market increased by roughly 8% Citywide. Some neighborhoods, especially the Waterfront, saw dramatic increases in the time it takes to sell a property.

Summing it all up it is safe to say that the downturn that started in the middle of 2005 has turned around. Anecdotally Q2 2010 seems even busier and more robust Q1 2010. It remains to be seen what effect the expiration of the tax incentives will have on the numbers for the balance of the year. Interest rates are likely to remain low as demand for US Treasuries continues to increase given the recent difficulties in Greece, Spain and Portugal.

The next time you know someone thinking of buying or selling in the Boston area call or email me. It will be my pleasure to help them. Here™s to a great year in 2010!

Cheers.

Boston Real Estate “ 2008 Year in ReviewIt is my pleasure to provide you with Boston™s fourth quarter and year-end housing results derived from LINK, MLS and a variety of other sources. As the chorus of negative economic news grew louder in the fourth quarter, we witnessed a significant acceleration of the trends I™ve reported throughout the year. The government bailout of Fannie, Freddie and AIG, the investor run on Reserve Primary Fund, the bankruptcy of Lehman Brothers, the announcement of massive job losses, the tightening of credit standards and the declaration that we have been in a recession since December, 2007 caused a sharp decline in the number of units sold as well as the number of units available for sale.  As was the case throughout 2008,however, prices in the core downtown neighborhoods continued to remain relatively stable in Q4 due to the parallel drop in both demand and inventory.

While frustrating for buyers, low inventory continues to be our saving grace. As a recent front page article in the Wall Street Journal states: œAreas with relatively lean supplies of homes in relation to recent sales include Boston, Washington, San Francisco, Sacramento and Orange County, Calif. That suggests these areas may recover more quickly than others once consumer confidence revives. To put Boston in perspective, of the 28 major metropolitan areas surveyed, the Journal reports, only Sacramento has a lower supply of available inventory (4.2 months) than Boston (4.9 months). Consider this; Miami has a whopping 29.5 months of available inventory!

Boston is also weathering the economic downturn better than most other regions of the country.  Equally important, our supply and demand for housing have essentially remained in balance. Of the 20 largest metropolitan areas covered in the Case-Shiller index only 4 cities fared better than Boston in 2008. While the average decrease in year-over-year sale prices was 18%, œBoston (defined in Case-Shiller as Quincy, Cambridge and points North to the New Hampshire border) was only down 6%. While in 2008 most areas of the country experienced sharp increases in available inventory, and an equally sharp decrease in the average prices paid for sold units, Boston fared much better.

Nevertheless, there™s no denying things have slowed considerably when comparing the Q4 2007 to Q4 2008.  (Note: The Q4 Back Bay numbers are skewed due to a large number of very expensive closings at Zero Marlborough Street and the Mandarin (59 units in total at an average price of approximately $5 million).  Since these condos went under agreement between 12 and 24 months ago when the market fundamentals were totally different, I˜ve reported the Back Bay unit sold numbers both with and without these sales, denoted in red.  

Now let™s take a look at the numbers for the fourth quarter, starting with units sold.

For the year as a whole the numbers look a little better considering the relative strength of the first 3 quarters compared to the last.

Unlike most metropolitan areas, the current available inventory in Boston is down by more than 10% (LINK).  

As supply and demand in Boston are basically in balance, the average and median sale price remained virtually flat between 2007 and 2008. When you view the tables below, keep in mind the average price, median price and price per square foot in the Back Bay show higher than they would be without the ultra-luxury sales at Zero Marlborough and the Mandarin.

Furthermore, the average dollar per square foot paid generally remained stable throughout Boston™s neighborhoods.

And days on market were relatively stable, increasing in some neighborhoods, while decreasing in others.

In closing, there are very good opportunities to buy and sell in the Greater Boston area. Sellers should take into consideration the limited competition given the decrease in available inventory. Buyers who have been on the side-lines waiting for big price drops should recognize that prices have been stable throughout the past 12 months of extremely turbulent conditions and show little sign of a large decrease. More significantly, buyers should take advantage of the increase in buying power provided by current interest rates which are hovering around an unheard of 5% or less.

Feel free to call or email me with any questions you may have. And as always, please keep me in mind whenever you or someone you know has a real estate need in the Greater Boston area. I value your business and your referrals.

Cheers!

Mortgage rates have dropped dramatically since the Federal Reserve unveiled a plan last month to buy up to $500 billion of mortgage securities backed by government-sponsored enterprises, Fannie Mae and Freddie Mac.

Interest rates on 30-year fixed-rate mortgages dropped to a record low, according to a survey released today by home funding company Freddie Mac to an average of 4.96%, with an average of 0.7 point! The 15-year fixed-rate mortgage dropped to 4.65%!

Low mortgage rates have spurred a surge in home refinancing loans, which should provide a bit of relief to strapped consumers amid rising unemployment and a shrinking economy. The precipitous drop in rates should also help increase demand for loans to purchase a home.

So if you or someone you know has been thinking about purchasing a home in the Greater Boston Area, call me. I will take excellent care of them! If it™s a question of refinancing, I™ll put them in touch with an excellent mortgage professional.

Thanks for the support!

Like much of America I followed the events of this past week on Wall Street with a sense disbelief and confusion. Feeling the need to better understand what happened, and what it will mean moving forward, I spent the better part of the weekend reading the Economist, the Wall Street Journal, the New York Times and speaking with experts in field of finance. The following is one layman™s attempt to put it all in terms understandable to those of us, like me, who are not economists and who do not have a MBA.

In recent weeks we saw: (1) the federal seizure of mortgage giants Fannie Mae and Freddie Mac; (2) the bankruptcy of Lehman Brothers; (3) Merrill Lynch™s shotgun marriage to Bank of America; (4) the federal seizure of American International Group; (5) a fall in the stock prices of Morgan Stanley and Goldman Sachs of 24% and 14%, respectively; (6)  the downgrading of Washington Mutual™s credit-rating to junk status; (7) the SEC issue new rules prohibiting the practice of short selling on financial shares; (8)  the LIBOR rate jump from 3.33% to 6.44%; (9) Reserve Primary, the oldest money-market fund, post a loss; and (10) the Fed, in co-ordination with other central banks, pledge to inject $180 billion of short-term liquidity into the markets.

Wow, it™s no wonder that the Dow whipsawed up and down causing anyone who watched it to feel queasy.  But why was the government saving some institutions last week, and letting others fail?  There is a pattern in the government™s ad hoc response crafted and directed by Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke. Put simply:

1. Determine if the firm is so large or integral to the financial system that to let it fail would cause a catastrophe.
2. If the answer is no, encourage a private sale, or let if file for bankruptcy.
3. If the answer is yes, then take it over and make sure that the taxpayers get first claim on the assets, and replace the current management.

Applying the above test the government took a hard look at the books of Fannie and Freddie and determined that they were woefully under-capitalized, which had been suspected, but not readily apparent due to the use of questionable accounting practices. Since these two giants buy up half of all US mortgages to allow them to fail would not only have been catastrophic to the housing market and the overall national economy, it would have had international political and economic ramifications. Now with the explicit backing of the government the hope is the market for mortgage backed securities will stabilize, allowing more loans to be made.

Unlike Bear Stearns, the government decided that Lehman Brothers was not so big or integral to the financial system, and thus could be allowed to fail if a buyer was not found.  A buyer was not to be found without backing from the government, and so Lehman Brothers filed for bankruptcy and Barclays subsequently purchased some of its assets at fire sale prices.

But the fall out was horrific. As it turned out American International Group (AIG), an insurance company, had written a considerable amount of credit-default swaps (a type of guarantee against corporate defaults) against Lehman Brothers. The bankruptcy caused a liquidity crisis at AIG and the government had to step in and extend $85 billion in credit to AIG in exchange for a 79.9% stake in the company. The government could not allow it to fail as AIG has a $441 billion exposure in credit-default swaps.

The fall-out from the Lehman Brothers failure had further repercussions. Many Americans have money market accounts, thought to be the safest of investments. Money markets typically invest in short term corporate debt, the kind that banks and businesses float to fund their daily operations.

When Lehman Brothers filed bankruptcy it caused the Reserve Premier fund, which had invested in Lehman™s debt, to loose money. And because money markets are not insured, people started pulling their money out of the money market funds, causing a freeze up in the commercial paper market. Without this money many businesses and banks simply can not operate. It would be like you or me going to the ATM only to find there is no money in the account, and the bank has terminated our overdraft protection!

To cover anticipated withdrawals banks started hoarding their money and not lending to each other, sending the LIBOR rate through the roof. To quell fear, the government decided it would extend federal insurance to money market accounts, and in conjunction with other central banks, inject $180 billion of short-term liquidity into the markets (i.e., lend the banks the money).

Despite these extraordinary efforts to calm the markets, they continued to roil. Partly in response to the brutal pummeling the stocks of Morgan Stanley and Goldman Sachs were taking (despite better than expected earnings results) the SEC halted short sales against financial companies. Panic and, not reason, was thought to be the cause of such dramatic drops in share prices which were destroying confidence in the market.

This morning, Morgan Stanley and Goldman Sachs announced they were each filing for a  change in their charters that will allow them to act more like commercial banks. They will now be able to increase their capital reserves by accepting federally insured deposits. In exchange they will be subject to federal oversight. This will certainly lead to more conservative lending practices, and lower future profits. There are now no stand-alone investment banks left on Wall Street.

Realizing that the ad hoc responses to the unfolding crisis were proving insufficient, Secretary Paulson and Chairman Bernanke determined it was necessary take the boldest step yet to avoid a collapse of the entire financial system. Over the weekend they have been working with Congress on a bill that would allow the Treasury to buy $700 billion of mortgage backed securities of questionable value from financial institutions.

The hope is that when financial institutions sell the debt to the government (at a discounted price) the government can hold the debt for a period of time until the markets stabilize, and then resell it at a profit. Another possibility is that once the government owns the debt, it can work out easier terms with homeowners that may allow them to stay in their homes and avoid foreclosure. This would have a positive effect on declining home values, the root cause of the mess we find ourselves in today. It would also increase the value of these securities, to the taxpayers™ benefit, when they are resold.

Sometimes an analogy is helpful to understand complex problems. Let™s say your heart is like Wall Street in that it pumps blood (credit) throughout your body (the economy) where it is needed. You go to your doctors Ben and Henry because you have some chest pain (call it AIG). Henry and Ben perform an angioplasty (a bailout).  The next day you feel even worse. Henry and Ben tell you you are about to go into complete cardiac failure because your heart and arteries are full of plaque (bad mortgage debt), blocking the flow of blood (credit). Ben and Henry tell you they need to perform open heart surgery immediately. This causes you to pass out, and Henry and Ben look to your family (Congress) to sign the consent form (the bill for the $700 billion bailout). That about sums it up.

Make no mistake that these past weeks have seen monumental changes to the ways in which finance operates in America. If the Paulson/Bernanke proposal is not enacted quickly by Congress the future of our economy is at risk. To put it in perspective, when asked by one member of Congress what would happen if the bill failed, Secretary Paulson replied: œIf it doesn™t pass, then heaven help us all. So stay tuned. Stay informed. It could be a difficult recovery.

And as always, whenever you know of someone looking to buy or sell a home in the greater Boston area do them a favor – pick up the phone a give me a call. I™ll take great care of them for you! Also, feel free to forward this email along to anyone you think may benefit from it.

And now for something completely different; if you want to be cheered up, and perhaps even amused a bit, you can now listen to the sermon I gave at Arlington Street Church this summer. Given the laughter, applause and positive feedback, I guess it™s pretty good. Just click on the following link, scroll down to the bottom of the page, click on the œASC Sermon Podcast icon, and then click on the #9 sermon dated July 13, 2008.

http://www.ascboston.org/worship/archive-0708.html

Cheers!

Welcome to John O’Connor’s Blog! This blog will provide you with valuable information, tips, and general insight into the real estate market in Boston.