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Review of Real Estate Market Conditions and Property Values in West Roxbury, MA

Over the past 10 days, I’ve reported in detail on the various market dynamics that influence residential property values in West Roxbury.  As noted in the three (3) previous posts written on this subject, in order to understand what is happening across the overall market segment for the end of the 2nd quarter in 2007, it was necessary to break the analysis down and examine the data in subsets.  First, we focused on West Roxbury’s single-family market segment, next we addressed the condition of the condo market, and, finally, we explored the goings on in the multi-family market.  Taken together, these three (3) market subsets tell us much of the story as to what’s happening in the residential marketplace for West Roxbury.

In this post, I will attempt to bring it all together in an effort to provide readers with a sense of what is occurring across the entire market.

A quick review:

• Single-Family Market–by far is in the best shape when compared to condos and multis.  The most significant aspect of this market segment as illustrated by its trend-line is that the ratio of single family homes under contract versus the total number of homes for sale is higher than at any other time in the past two (2) years.
• Condo Market–Although struggling over the past 18 months there are definite signs over the last quarter of a strengthening market.  While inventory is still a bit on the high side, the number of under contracts has been increasing in recent months.  Opportunities on the buy side remain strong.
• Multi-Family Market–Of the three (3) market segments, the multi-family market in West Roxbury has taken the hardest hit.  After investments in multi-families hit a fever pitch in 2003-2004, fueled in large part by the city-wide condo craze which spread like wildfire through Boston from 1999-2004, this market segment has experienced a significant downward shift in median sales prices and number of units sold. 

An interpretation of the real estate market data suggests that after an extended, but not necessarily dramatic (e.g. soft landing), adjustment period (some would say necessary market correction after an historic seven (7) run that saw in astonishing rate of appreciation year over year and subsequent rise in values), the market has returned to normalcy where there is a healthy balance of supply and demand overall.  While some segments have been slow to recover (i.e. multi-family), the market as a whole is, once again stable, and even beginning to tighten in some segments as some indicators suggest.

Next up:  The Roslindale Real Estate Market…

Market Conditions for Multi-Family Dwellings in West Roxbury, Ma

There was a time, a long time actually, when the real estate market for multi-family dwellings in Boston was hot, hot, hot.

Not so much anymore.

Why the change?  Well, the short answer is that the return on investment (ROI) for multi-family properties has been marginalized.  So as not to short-change the dedicated readers of rehubbub.com, however, allow me to give you the long answer (opinion) to the question of ‘what happened to the multi-family market in Boston.’ 

First, let me attempt to explain why this market segment was so hot for so long.  In my estimation, there were two 2) primary reasons:

1. For many years, right up until the mid-1990’s really, rental income on multi-family properties was more than sufficient to cover the cost of most owner’s monthly mortgage payment, including PMI (if applicable) and taxes.  In fact, it was often the case that this rental income, not only paid for the mortgage, insurance and taxes, but also provided the owner with residual income that was theirs to keep and do with what they wished.  Even if the owner of a multi-family dwelling was merely “breaking-even” in the sense that the rental income was only enough to carry the mortgage and related expenses, it was still a win-win for the owner.  Why?  Because the owner was not only building up equity in the property by paying down the mortgage note, but also because appreciation was adding to their property’s value.  Thus–by applying the logical equations of the time value of money–most landlords in Boston did quite well by investing in multi-families.   

However, the above mentioned conditions were no tightly kept secret–and it wasn’t long before many more people appeared on the scene who also wanted to invest in multi-family properties and realize some of the same benefits of those who came before them.  Soon, as the population of ready, willing and able investors grew, demand began to exceed supply–thus forcing values up, up, up.  So high, in fact, that the cost to finance a multi-family in Boston was no longer necessarily offset by the amount of rental income one could expect to get, even when factoring in the double-digit appreciation occurring year after year.  Thus, in this sense, ROI on multi-family investments was marginalized and it continues to be as such.

2.  Then, in the nick of time and before the multi-family market might well have gone flat, the condo-conversion craze hit the Boston real estate market, like a tsunami.  Now investors did not care so much about whether income received from rentals was enough to cover the mortgage payment, as they had no intention of keeping the property in their possession long enough to be affected by tenancy or rental income issues.  Instead, a brand new way to make money from investing in multi-family properties hit the scene–which was to convert the individual units to condominiums.  So, between the mid-1990’s, when the rental approach to profit from multi-families was hitting a financial wall, so-to-speak, through to around late 2004, investors were buying these multi-family properties in droves, quickly converting them to condos, and selling them just as quickly.  These were heady days and many investors made a lot of money through condo conversions.

But, market dynamics being what they are, with every action causing an equal and negative re-action, things changed once again.  This time, here’s what happened to the multi-family market:  Demand for multi-families exceeded supply (similar to what happened in above mentioned rental scenario #1); however, this was coupled with a new phenomenon–an oversupply, or glut, of new condos being introduced to the market, thereby creating more supply than demand forcing condo values to, at best, stabilize.  Essentially what had happened is that the multi-family/condo conversion market ended up cannibalizing itself. 

While there were other economic factors at work, those mentioned here certainly had a primary impact on the market dynamics.

So, where does this leave us?  What does the multi-family market look like today?  Suffice to say the landscape looks quite different. 

In keeping with our current theme of analyzing the Boston real estate market one neighborhood at a time, let’s turn our attention to the neighborhood of West Roxbury and look at the current state of the multi-family market contained therein.  As in previous posts on the West Roxbury market–the first of which addressed the single family market which was followed immediately by a post on the condo market –we will use as our tools the three (3) leading indicators of median sale prices, supply and demand by units, and the monthly supply of inventory (MSI) to dissect the multi-family market in order to give a sense of current condition of this market segment.

First, let’s look at the following graph which illustrates the median sales price trend-line of multi-family properties in West Roxbury over the past two (2) years:

This trend-line is not for the feint of heart, but keep in mind the size of the multi-family market in West Roxbury represents only about 10% of the overall market at any given point in time.  With numbers this small, it is not unusual to see significant swings month over month as a single sale or two can, at times, skew the numbers.  With that caveat, this trend analysis reveals a relatively static market when compared the hay days of the late 90’s through 2004.  By the numbers, the median sales price for multi-family dwellings in May 2005 was $635,000, but in May ‘06 it fell to $497,500–a 22% drop year to year.  The good news is that there has been an 11% rebound over the past 12 months with May ‘07 median sales price at $530,000.  Similar to the single-family and condo markets in West Roxbury reported on in earlier posts, the multi-family market segment had also experienced a market correction, albeit more dramatic, the single-family and condo segments.

Now, let’s analyze this next indicator which addresses basic supply and demand over the past 24 months.

Again, the news is not good for the multi-family market segment in terms of overall values and number of units sold.  This indicator measures the relationship between properties for sale versus properties that have gone under contract.  The first thing that stands out here is that this has not been a very good Spring market for multi-family dwellings in West Roxbury–especially when you consider there’s only been three (3) sales in the past three (3) months.  And though the amount of inventory for has remained relatively constant over the past two (2) years, the number of properties going under contract for the last 12 months has been cut nearly in half when compared with the first 12 months between May ‘05 and May ‘06

Our last indicator, the monthly supply of inventory (MSI), corroborates the previous two (2) trend-lines.  That is to say, typically, when median sales prices are down and the number of properties going under contract is also down, then is many cases the amount of time it takes to move inventory off the market increases.  And this is exactly what this indicator shows.  Since May 0f 2005, the monthly supply of inventory has increased steadily increased from 2.3 months to 3.8 months in 2006, and finally to it’s current rate of 6.8 months for May 2007.

So, what’s this all mean?  Obviously, the multi-family market in West Roxbury has gone through a significant downward shift over the past two (2) years when compared with the previous eight (8) years.  Is this surprising?  Well, when you consider that, at its height, the multi-family market surpassed both the single-family and the condominium market in terms of values and appreciation rates, is it really that surprising that when the market finally corrected itself that those property values that were once at the peak of the market are now getting a taste on the other end of things?  I think not.  What will happen to the multi-family market in Boston?  Not sure–but stay tuned as we will take another look at this market segment at year’s end.

Market Conditions for Condos in West Roxbury

In this second installment of a continuing series on how real estate market dynamics influence residential property values in Boston’s neighborhoods, the focus of this post will once again be on the community of West Roxbury–however this time we’ll target the condo market.  In our last segment, we considered the condition of the real estate market for single-family homes in West Roxbury, and determined that, overall, things were looking pretty good as there seems to be a healthy balance between the amount of inventory for sale and the number of ready, willing and able buyers circulating in the market.  This is good news for both buyers and sellers of single-family homes.

The condo market in West Roxbury, however, tells of a slightly different story, and although there is good new to be gleaned from a careful reading of condo market statistics, the story itself depicts a market segment struggling to recover from a prolonged exposure to downward pressures on sale prices.  Then again, some recent indicators suggest a rebound may be underway.

Before diving into the numbers and the graphs, let’s briefly review the specific purpose, extent and approach of this series of blog posts on the state of the Boston real estate market.  Suffice to say Boston is a significant real estate market in terms of its size and scope, and that it is comprised of multiple subsets of market dynamics between neighborhoods and different property types (condos, single and multi-family).  And although the over-all objective here is to provide readers with a detailed analysis of the real estate market throughout the City of Boston–and to provide insights into the health and condition of said market (which we will do in time)–to achieve this goal it is better to start small.  Thus the decision to approach this  market study on a neighborhood by neighborhood and property type by property type basis.  The cumulative effect of this approach, we hope, will provide readers with a firmer grasp of over-all market conditions city-wide.

Anyhow, back to the West Roxbury condo scene.

As in our earlier analysis of the West Roxbury’s single-family market, we will dissect the condo market by looking at it from different perspectives.  We will examine this segment by using three leading indicators as our tools.  They are:

• Median Sales Price — The mid-point of sale prices, where half the sales are below and half are above said point
• Basic Supply and Demand by Units — The number of for sale properties versus the number of properties that have gone under contract on a month by month basis
• Month Supply of Inventory (MSI) – Indicates how long the current supply of inventory will last (usually forecast by number of months out) given current market conditions and historical demand

So, starting with the median sales price indicator for condos in West Roxbury, let’s examine the following graph:

Again, using a 24-month time-line beginning in May 2005 and ending in May 2007, the trend-line above clearly suggests a steady, but not necessarily dramatic, downward drift of median sales prices.  The graph illustrates an adjustment in the condo market has occurred.  By the numbers, in May of 2005 the median price was at $260,500 compared to a May 2007 median price of $239,000–a difference of 8.25%.  However, the percentage difference between May 0f 2006 and May of 2007 is only about 3% to the negative–a sign perhaps that the downward pressure on price is subsiding.  Another good sign is that the average day on the market for condos in Wet Roxbury for May 2007 (83 day), while higher than in 2005 (70 days) , is in fact lower than the average days on the market for May 2006 (94 days). 

The next indicator, supply and demand by number of units, also suggests that the condo market in West Roxbury has been struggling a bit over the past 2 years.  The last quarter, however, does show signs that it is beginning to strengthen. 

Supply and demand by number of units measures the number of properties for sale versus the number of properties that have gone under contract on a monthly basis.  The postive news depicted by this graph is that in May 2007 the number of condo for sale (83) is shrinking and the number of condos going under contract (11) is increasing when compared with the same figures for May 2006 (113 units for sale/12 under contract).  So, although the condo market has had it’s problems there are definite signs that things are improving.  Still, opportunities for the buy side remains strong.

Finally, we look at the monthly supply of inventory (MSI) indicator for condos in West Roxbury. 

This graph speaks to how many months out it would take to move the current supply of inventory on the market.  Currently, the graph hows that it would take the West Roxbury condo market about 5.7 months to clear out current supplies.  This a little high when you consider that 4.5 months MSI is the current national average, however it is significantly down from May 2006 of 7.4 MSI. 

Again, taken together these three indicators–median sale price, supply and demand and monthly supply of inventory–provide for a good measure of current market conditions for condos in West Roxbury, and allow us to put our finger on the pulse of the market.  My reading of these indicators as applied to this segment is that although the condo market has had its share of difficulties in the past 24-months, which included some needed corrections, there are definite signs that things are heating up as is evidenced by the gap between for sale inventory and under contract inventory–which is decreasing with each passing month.

How’s the Real Estate Market Doing in Boston/West Roxbury?

As a Realtor, I often get asked the question by random people “how’s the market doing?”  It’s a great question, but one that I am rarely able to fully answer simply because most of the the time the person asking the question is looking for a quick answer (e.g. it’s up, it’s down, it’s holding steady).  Of course, there are times (such as during listing presentations) that I am able to explain more fully the dynamics that are occurring within a given market over a specific period of time regarding a particular property type (e.g. condo, single or multi-family homes), but even then I’m limited by the time allotted, usually by the client, for the presentation.  Nevertheless, the question of ‘how any market is doing’ is one of the most important ones that can be asked, and it deserves a full and comprehensive explanation-which is what I intend to start here today at rehubbub.com and continue to investigate and report on over the coming weeks and months. 

Because the topic is so expansive, however, coupled with the fact there is no one size fits all answer, I’d like to break the question itself and the subsequent answers into manageable pieces of easily digestible information, focusing on one segment of one market at a time.  My hope is, that over the next several months, I will be able to give readers a detailed and comprehensive sense of the current shape of the real estate market in each the neighborhood of Boston, as well as for Boston as a whole.

With respect to all the other wonderful neighborhoods comprising the City of Boston, I will begin this detailed analysis in my own back yard–that is the area of Boston known as West Roxbury (in time I will do the same for all of Boston’s neighborhoods).  Moreover, I will limit the first in this series on West Roxbury market dynamics to single-family homes.  I will further adjust the lens of this analysis by focusing on three (3) important indicators that, when taken together, tell a story as to the overall health of this market segment.  These indicator are as follows:

• Median Sales Price — The mid-point of sale prices, where half the sales are below and half are above said point
• Basic Supply and Demand by Units — The number of For Sale properties versus the number of properties that have gone under contract on a month by month basis
• Month Supply of Inventory (MSI) – Indicates how long the current supply of inventory will last (usually forecast by number of months out) given current market conditions and historical demand

When speaking intelligently about market conditions, or answering the question “how’s the market doing,” a good realtor will be able point to these leading indicators and explain, in plain English, what they mean to a prospective home buyer or seller.  It is, after-all, our job to accurately interpret market conditions and clearly communicate that knowledge to our clients. 

So, starting with the Median Sales Price indicator for Single Family homes in West Roxbury, let us examine the following graph:

First, the obvious:  This graph depicts a 24-month trend-line of median “sold” prices for single family homes in West Roxbury.  At first glance it may seem like the market has fallen of significantly since May of 2005 when the median sales price was $469,250 (May 2007 = $405,000), but there’s more to this story.  When taking this into context and aligned with the next two (2) graphs you will see that the market for single family homes is indeed strong and vibrant.  Has there been an adjustment in sales prices over the past 24 months?  Absolutely.  But it was a necessary correction coming on the heels of a 7-year run with historic highs not likely to be replicated in our lifetimes.  If you look closely, there is only a slight difference (roughly 1%) in median prices between May 2006 and May 2007.  The good news for home sellers is that the market is tightening and forcing an upward trend as is evidenced by nearly a full quarter (Feb-May 2007) of activity.  There is also good news for home buyers here as it is always a good time to invest in real estate when median prices are trending upward.

As I mentioned earlier it takes more than one indicator to tell the whole story.  This next graph illustrates an interesting trend in supply and demand by number of units over the past 24 months. 

What surprised me when I first studied this graph is that the ratio of single family homes under contract versus the total number of homes for sale is higher than at any other time in the past two (2) years.  Where as the last graph had shown us that a downward adjustment in sold pricing did in fact occur, this graph tells us that the market has accepted that correction, and moved on–showing definite signs that we are in a full recovery mode.  By the numbers, this graph shows that the number of for sale properties in May of 2005 was 119, and the number of properties under contract during this same period was 28.  Now, in May of 2007 the number of properties for sale was 129, with 37 having gone under agreement.  What this graph says to me more than anything is that buyers and sellers more and more are seeing eye to eye with respect to values. 

The third and final graph (above) measures what is referred to as the Monthly Supply of Inventory for Single Family homes in West Roxbury.  This indicator completes the telling of the story as to the overall condition of the single family market in West Roxbury.  It corroborates what the previous graph has shown us–that is that this market segment is definitely tightening up.  Specifically, it illustrates that the monthly supply of inventory is, in fact, in short supply–only 2.2 months.  In other words, if no other inventory were introduced to the West Roxbury single family market, then the existing supply would last only 2.2 months.  That is very short when you consider the rest of the single family market throughout the City of Boston is at 5.2 months MSI, and nationally at about 5.5 months MSI. 

There’s good news to be gleaned from all three (3) of these indicators.  Together they show a market in recovery and one that is definitely picking up steam.  To me, what I see is a much healthier market overall when compared to the hyper-inflated values and double-digit appreciation of the aforementioned 7-year historic cycle between 1998 and early 2005.  It may have been an exhilarating ride, but I for one am glad it’s over and, more imprtantly, a successful (soft-landing) return to normalcy is seemingly at hand.  Let’s hope it continues…

Next up:  The West Roxbury Condo Market (a slightly different story)

West Roxbury Single Family Real Estate Market Heating Up

Among the important real estate indicators we look at when determing the overall viability of the real estate market in West Roxbury is the basic absorption of housing inventory over time. The term “basic absorption” simply means the rate at which the market absorbs housing inventory, or rather the amount of time it would take for current supply of inventory to dry up.

When analyizing basic absorption it’s important to consider a few key factors:

1. Residual Inventory–the # of homes for sale currently in a given market at specific points in time
2. New Inventory–The # of new listings introduced to the market at same points in time, thus adding to the Residual Inventory
3. Listings Under Contract–The # of listings that have placed under agreement during the same period of time
4. The movement of the above mentioned items (up or down) over time

Typically when these items converge in a trend line format, it’s a good indication that a market is heating up.

For example, the above graph which represents the basic absorption of single family inventory in West Roxbury, MA clearly shows these trend lines are converging for the month of May, 2007. This is a good sign–a sign of a healthy market where equilibrium exists in terms of the relationship between residual inventory, new inventory and inventory under contract. It definitely appears as if the single family market in West Roxbury is improving.

Any thoughts?

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