Jamaica Plain Condo Market: Why Buy Now?

Jamaica Plain's condo market conditions are as good as they've ever been.

If I sound like a salesman, I apologize.  But I am pretty excited right now.  Since I got into this business in 2005, I have tried to temper my outlook on the market with a realistic look at the sobering trends that defined it.  And currently, the  sales market in my area of expertise (Greater Boston) isn't exactly moving at the speed of light--after 6 years of this ongoing housing/mortgage crisis who can blame it?  

Looking a little more closely, there is something interesting happening right now. Specifically, let's look at Jamaica Plain, a market that has shown strength in the face of this historic downturn: 

Prices in Jamaica Plain have remained largely consistent since the market fell from grace in late 2005.  With some ups and downs, the JP condo market has on average seen a quarterly fluctuation of about 1 percent of the average sales value (the standard deviation of those fluctuations is about 4 percent).  That's darned good.  Why?  Many reasons.   To name a few:  we have seen small businesses flourish in JP;  JP is surrounded by some of Boston's most beautiful green space;  it has two major public transit lines; it's got some beautiful housing stock; and its community is as involved as any other in Greater Boston.   And there is still much that is un-tapped and ripe for development and new business (if Mordy Levin would ever step out of the way).  

This is great news for JP.

The benefits to buying and owning property are many:  building equity, tax benefits on mortgage interest, not paying rent, etc.  One of the first bits of analysis a would-be home buyer should do is to look at the cost of owning versus renting.  This year we have seen rents surge and prices continue to soften.  The gap hasn't been wider.  We have seen the mortgage rates drop as well.

Let's play with some numbers and look at the big picture of the small market in JP to see what they may be telling us.  I promise that I'm not manipulating the numbers to benefit me or  my business. Let's see what's happening:

First I did a study of 7 years of the JP condo market through October 2011.  (See figure A) You can see a last minute up-tick for October 2011.  That's a bit misleading.  The data provider I used to make this chart didn't include the most recent numbers from November.  I knew from being in the trenches that November showed another softening, so I pulled data directly from MLS for the past two years and it shows that prices have dropped again: Figure B.  

Strangely, the price per square foot has seen less deviation from the mean than the sales prices.  That is a number more consistent with overall value for the space owned.  In any case, the average price for November 2011 is down to somewhere around $324K per condo.  

The low number coincides with a precipitous drop in monthly inventory (e.g. the number of months it would take to sell all the units on the market at the current rate of absorption:  see figure C) of over 50% from 8.1 months to 3.8.  Less inventory selling at a faster rate and at lower prices.  Hmmm?  What is happening here?

Well for starters, it's November.  Typically not a great time to be selling your property.  The coming holidays, bad weather, the rental cycle (for first time buyers) and (if you have children) the last few weeks of school all come into play and keep the majority of folks interested in buying a home AT home until the ground thaws and the holiday madness is safely behind us.

With this in mind, sellers historically hold off too.  Unless you're in a must sell situation, it's not generally advisable to list a condo for sale (single families, since they're so rare in JP and multi-families, since investors don't just shop seasonally, don't follow the same rules) so most don't.  The inventory drops.  But this drop, when viewed through the lens of low, low, low interest rates and another round of price softening, makes sense.  If you're buying something right now, chances are you're getting a good deal.

But wait, there's more!  I did a historical study of mortgage rates (by month since 2004) and compared them to the average prices at that time.  What I found was pretty astounding: see Figure D.  The interest rates are as low as they have been since this market downturn began. Rates, unlike average sale price in JP, can turn up or down on a dime as we've seen.  A 1 percent increase over a month or two isn't unusual.  

So I looked at the absolute peak in value from my study (April 2007) and took the interest rate from the same month (6.28 percent) and calculated the cost per month to the homeowner.  I then looked at last month (October 2011) and this month with the same rate comparisons.  You can see this graphic on Figure E.  

So the price difference from 2007 to now is about 15% (only 5 percent if you look at last month), but the cost of living (out of pocket monthly) is 34 percent!  That's pretty amazing.  

But some say: "Prices will continue to come down."  But will the interest rates stay so low?  I doubt it.  The fact is that average mortgage interest rate since 2004 has been about 5.6 percent.  If we gravitate toward the mean, it's likely we'll see an increase before the middle of next year.  

Imagining the scenario where the price drops another 4 percent (the standard deviation of price fluctuation since 2004) from now and the interest rate rises by 1 percent  we're at $310K  at 5 percent.  The monthly payment RISES 7 percent.  I suspect that we'll see some price increase actually (I know, a strange prediction).  If the price increases by 8 percent (two standard deviations from its 7 year history) and the mortgage rate rises by a half point, the monthly increase in costs is 14 percent. My point is that we're pretty much at the bottom in terms of affordability and even with an increase in prices and a slight increase in mortgage rates, we're still looking pretty good.

That's not even factoring the cost of rent.  In JP, the average rental cost is around $2,000 (about $1,800 for a 2 bedroom).  If you consider that for several of your first years of mortgage payments, 70-80 percent will go to interest and that has a tax savings of another $3,000 per year (or $243/month), your cost of living, per the current rates/prices, approaches $1,100/month.   If you include taxes (with a residential exemption of course) and the average condo fee, that's savings of $200-$400 per month.   Will rents come down too?  I seriously doubt it.  There was so much demand this year it's hard to see rents falling much, if at all.  They are up city-wide and demand is still high.

The bottom line is that if ever there was a time to make that first purchase, it's now.  Are some folks still overpaying?  Of course!  Are some folks getting the deals of their lifetimes?  You bet!   So if you're thinking about buying a place my advice is simple:  find the right agent who will help you navigate through the mire, a lender who can keep you informed and get started.   What are you waiting for?