Quality Real Estate Stays Strong – “Junk” Falls

8.17.2010

Remember in 2005 when people would, just to afford the type of house they wanted, buy 45 miles outside of Boston? Extra-burbs such as Blackstone to the south and Pepperell to the north saw strong price increases because it was all that most average people could afford. We saw headlines regularly with such titles as “The Average Person Can’t Afford the Average House.”

These days however, when the market is wavering we are seeing a different dynamic – one that is common to many markets including the stock market – when times are difficult people pay for quality and discard everything else. In the stock market, money managers tend to buy “quality” large company stocks when the economy wavers – due to the thinking that for example, ┬áregarding a company like Clorox, people will still need to buy basic goods even in a recession and a big company like Clorox has plenty of cash to weather the storm.

In the real estate market, locally to Boston, Cambridge for example, has exhibited strong value retention while many extraburbs have experienced strong price drops. I got my recent report from Tamela Roche, a very active Realtor in Cambridge – her report shows relatively strong buying activity in the Cambridge market with prices up year over year. In fact, see her latest newsletter HERE to compare prices and volume in Cambridge to the town next door – Somerville. It’s amazing that the difference could be that big for two abutting cities.

Actually, investors are sticking with quality homes across the US. After temporarily falling in price, many quality San Francisco properties regained and surpassed former high prices. For example, the Infinity Towers, in the desirable SoBe neighborhood of San Francisco is almost completely sold out. They had a brief period – from December 2008-March 2009 – where prices dropped- but you had to be quick to get them. I know from anecdotal evidence that waiting too long cost significant money. Prices marched back up and beyond. Oakland however, just across the bay, is still in a major funk – a visit to County websites in the Oakland area gives you an idea of the amount of foreclosures there – it’s not pretty.

This also appears to be happening in Florida. A recent article from the Condo Vultures site reports that inventory levels are much lower in Hollywood than in neighboring cities:

“Unlike Miami Beach or Sunny Isles Beach to the south where each market has at least 20 percent of its new product still available, less than five percent of the new condo inventory is still available for purchase in Hollywood / Hallandale Beach,” said Peter Zalewski, a principal with the Bal Harbour, Fla.-based real estate consultancy Condo Vultures┬« LLC. “The primary reasons for the higher sales ratio in Hollywood / Hallandale Beach is the lower average asking price per square foot and the fact that fewer units were constructed.

Bottom line – quality is still selling, and at good prices. The market for less desirable cities (and less desirable doesn’t mean bad – it could mean demographically less desirable or many other reasons), may remain weak for some time but as long as stock markets stay ok (and Helicopter Ben will make sure of that), upper income/wealthy people will likely keep the bid up in certain areas. This may also be part of what Professor Richard Florida, who I’ve mentioned many times on this site, calls “The Great Reset,” Where he discusses the move from suburbs to desirable cities as a global phenomenon.

Feel free to share your thoughts!